50 student accountant June/July 2006

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audit assertions
This article explains how the wording of audit tests differs with regard
to manual and computerised systems. It also shows how within a
sales system manual and computer-based audit tests are similar, but
are explained differently.
THE SALES SYSTEM
To state the obvious, a companys sales system is designed to record all
of a companys sales. The first few stages in such a system are normally
as follows:
1 Customer orders are received and recorded in the system.
2 The order is processed, eventually leading to goods being dispatched
to the customer (following credit checks which are not considered
in this article).
3 The dispatch of goods results in a sales invoice being raised, with a
copy of the invoice being sent to the customer.
4 Sales invoices are recorded in the sales day book.
Within this system, as in any other system in a company, controls will be
established to ensure that the system is working correctly. For example,
sales invoices will almost certainly be pre-numbered, and this numbering
will be shown in the sales day book. Pre-numbering and other accounting
controls can then be used to test the completeness of the recording of
sales invoices. For example, controls will include a review of the sales day
book and a check that the numeric sequence of sales invoices in complete.
The auditor will record the accounting systems and controls within a
company, and then devise tests to ensure that there are no errors in the
companys systems or financial records. In audit terminology, the auditor
is checking that various audit assertions have been met. In the income
statement, for example, there is an assertion that all sales are recorded
the completeness assertion. To verify that this assertion is correct, the
auditor can carry out:
1 substantive tests to re-perform the activity undertaken by the company
2 compliance tests to check the effectiveness of any internal controls
that the company has implemented.
When testing the completeness of recording of sales invoices, the
auditor could:
1 review the sales day book to ensure that the numeric sequence of
sales invoices is complete
2 ensure that the sales day book has been signed by a responsible
officer at the end of each month, confirming that the numeric
sequence has been checked.
auditing manual and computerised systems
relevant to ACCA Qualication Paper F8
Similar compliance and substantive tests will be devised to check the rest
of the sales system. From the point of view of auditing a system, audit
tests will focus on satisfying the audit assertions. It makes no difference
whether the system is manual or computerised because test objectives
are the same for both systems. However, the explanation of the tests in
an examination answer will be different depending on the system being
audited.
The main testing differences for a computer-based system are as
follows:
Substantive tests focus on the computer and on access to specific
computer files.
Additional substantive tests use computer-assisted auditing
techniques (CAATs).
Compliance tests almost certainly require the use of CAATs, as many
of the controls are inside the computer.
When making these points in an examination answer, candidates must
clearly show that the system being audited is computerised. As usual,
an example of a system under audit will be provided in the question. The
candidates job is to identify and explain the audit tests required.
EXAMPLE TESTS
The remainder of this article provides example tests that aim to satisfy
the completeness assertion in an order/dispatch system. Each of the
following three sections initially explains what the system does, and is
followed by examples of audit tests for both manual and computerised
systems.
Recording customer orders
All orders must be recorded. In this system, assume that customers
either telephone the company with their order (manual system), or order
using the website (computerised system).
Manual system Computerised system
Compliance test Compliance test
Place an order by telephone and Place an order using the website
ensure that the order has been and ensure that it is recorded in
recorded by obtaining the relevant the companys system by viewing
customer order document produced the orders on screen.
within the company.
Compliance test Compliance test (using CAATs)
Observe staff in the company Place orders on the website using
to ensure that orders are recorded test data.
on order documentation as
customers phone in their orders.
Compliance test Compliance test
Review customer complaint files for Review customer complaint files
examples of orders not being fulfilled. for examples of orders not being
fulfilled.

The completeness of the recording of orders is quite difficult to test. The
substantive tests above all use dummy orders, sent to the company
and then deleted from the system after the test. However, the actual test
performed is very similar for both manual and the computerised systems.
The wording is obviously different, reflecting the use of the computer, but
both manual and computer-based tests focus on the input of dummy
orders.
Goods dispatched
All orders are dispatched, and in this system, the customer order has a
goods dispatched note (GDN) number entered on it.
Manual system Computerised system
Substantive test Substantive test
Obtain a sample of customer orders View a sample of customer orders
and record the GDN numbers. on screen and record the GDN
Obtain the relevant GDNs to confirm numbers. Open the GDN file and
the GDN number on each order is view relevant GDNs to ensure each
valid. order was raised.
Compliance test Substantive test (using CAATs)
Ensure that each order is signed by a Programme audit software to select
responsible officer confirming goods a sample of customer orders, obtain
have been dispatched. the GDN number from each order,
and verify that each GDN number
exists in the GDN file.
Compliance test
Ensure that the GDN has been
attached to the customer order.
Again, the manual and computerised system tests are very similar, as
both focus on obtaining the customer order and ensuring that a GDN
has been raised. The words used show the difference between the two
June/July 2006 student accountant 51
systems. The manual test assumes a paper document while the computer
test explicitly states using the computer.
Invoice raised
An invoice is raised for each GDN and, in this system, the invoice
number is entered on the GDN. Sales invoices are also pre-numbered,
although the GDN and sales invoice number sequences are different.
Manual system Computerised system
Substantive test Substantive test
Obtain a sample of GDNs and View a sample of GDNs on screen
record the invoice numbers. Obtain and record the invoice numbers.
the relevant invoices to confirm that Open the invoice file and view
the GDN number on each invoice each invoice to ensure it was raised.
is valid.
Compliance test Substantive test (using CAATs)
Ensure that each GDN is signed by Programme audit software to select
a responsible officer confirming the a sample of GDNs, obtain the
invoice has been raised. invoice numbers from each order
and verify that each invoice
number exists in the invoice file.
Again, the tests are similar. It is the wording that clearly shows the
type of system being audited. The list of tests provided above is not
exhaustive, but instead illustrates the type of test that could be included
in an audit programme. Therefore, if an auditing question includes a
computer-based system, this is not a cause for panic or concern. The
computer system will differ from a manual system, but that does not
mean it cannot be audited, or that a candidate with limited auditing
experience cannot obtain a pass standard. Focusing the answer on
the computer system itself, and showing that the system has been
understood by detailing computer-based tests, will help candidates gain
marks and hopefully achieve a pass standard.
SUMMARY
Manual and computer-based systems use the same audit assertions.
The explanation of the audit test shows that the candidate has
understood that a computer system is being audited.
Examination questions may ask for computer-based substantive
and/or compliance tests.
Alan Lewin is examiner for Paper F8
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Manual and computer-based systems use the same audit
assertions. The explanation of the audit test shows that
the candidate has understood that a computer system is
being audited.