Introduction 5.
Remote processing (tele-processing)
Auditing – a systematic process of objectively obtaining
and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of
correspondence between those assertions and
established criteria.
Systematic process
- It is structured as a dynamic activity in a logical
manner
Obtaining and e valuating evidence
- Auditor is concerned about assertions relating to
the reliability of the system of internal control
and the content of the files or outputs produced
by computer processing
- He performs both compliance testing and
substantive testing
Ascertain the degree of correspondence between those
assertions and established criteria
- It requires judgment on the auditor’s part as to
what constitutes a non-compliance
Communicating the results (audit report)
- To the client and other interested parties
- Preparation of the audit report
Who shall perform the audit?
A person or persons having adequate technical
training and proficiency as an auditor.
Impact of computers on the accounting and auditing
process
1. Internal storage
- With the representation of information in
electronic form inside the computer, the auditor
is no longer able to observe the processing of
data to determine……..
2. Programs can be change without the auditor’s
knowledge
- Such change can occur through a console
intervention, or with codes that can modify
themselves while program is running
3. Elimination of audit trail
- partial elimination or disappearance of those
documents, records, journals, ledgers and other
documents that enable the auditor to trace a
transaction from source document to
summarized totals in an accounting report, or
vice versa.
4. Multi-programming or multi-processing
- With the ability of computer systems to process
several applications simultaneously, files
currently being reviewed can be modified during
data processing by another program.
- A major threat is the potential loss of assets from
unauthorized access to programs and files (ex.
ATM)
- Data might be lost during transmission
- Phishing is the attempt to acquire sensitive
information such as usernames, passwords,
bank account and credit card details for
malicious reasons, by masquerading as a
trustworthy entity in an electronic
communication
6. Speed, On-line / Real-time processing
- since account balances are updated immediately
upon entering the system, it could mean that
before the auditor had finished reading and
adding the balances, some of the balances may
have already changed.
7. Multiple locations
- Multi-processing, on-line/real-time systems is
compounded by processing in several locations
- Several floors and offices in a building
- Several buildings in a compound
- Several geographical locations
8. Rapid changes: technology, business needs
Auditing approaches
1. Auditing around the computer
2. Auditing with the computer
3. Auditing through the computer
Auditing Standards and Computer auditing concepts
Standard of field work
1. Compliance testing
- “The auditor must obtain a sufficient
understanding of the entity and its
environment, including its internal control
- To assess the risk of material misstatements of
the financial statements whether due to error
or fraud, and
- To design the nature, timing and extent of
further audit procedures.”
Internal control
- Comprises the plan of the organization and all of
the methods and procedures adopted by a
business to:
Objectives  Safeguard its assets
 Check the accuracy and reliability of its
of Internal
accounting data
control:
 Promote operational efficiency and
 Encourage adherence to prescribed
managerial policies
 Internal control system Dual purpose testing
Administrative controls Accounting controls - Both types of tests, compliance and
-the plan of the -the plan of the substantive, are performed at the same time
organization and the organization and the
methods and procedures methods and procedures Who performs the computer auditing task?
to promote operational used to safeguard assets Demands as to expertise placed on the auditors:
efficiency and encourage and to check the reliability “If clients uses electronic processing in its
adherence to prescribed of accounting data accounting system, whether the application is
managerial policies -AIS controls: simple or complex, the auditor needs to
 General controls understand the entire system sufficiently to
 Application enable him to identify and evaluate its essential
controls accounting control features”
AIS controls
A. General controls When to perform the procedures?
- having pervasive effects Auditing concurrently with processing
 If they are weak or absent, they negate the - Information is available to the auditor while a
effects of the application controls program is running
1. Organizational controls Auditing after processing
2. Sound personnel practices - Audit procedures are performed after a
3. Standard operating procedures computer program is finished
4. Systems development controls
5. Documentation controls Where in the processing cycle the audit should be
6. Hardware controls performed?
7. Systems software controls Auditing the phases of processing
8. Systems security controls - Refers to the study and evaluation of internal
B. Application controls control
- relate to the specific tasks performed by the Auditing the results of processing
computer - Refers to the collection of evidential matter,
 Input controls emphasis is on the direct test of account
 Processing controls balances
 Output controls
Which parts of the system the Audit should be
2. Substantive testing performed?
- The auditor must obtain sufficient appropriate Auditing computer programs
audit evidence y performing audit procedures Auditing computer files
to afford a reasonable basis for an opinion Auditing computer systems
regarding the financial statements under audit
1) Test of details of transactions and balances
 Complexities include automatic:
o authorization of sales within
certain limits
o issuance of checks to vendors
on due dates
2) Analytical review procedures
 Performed to detect unusual
relationships among financial
information
 Review may include comparison of this
year’s amounts with the last year’s;
actual results with budget or forecast;
review of financial ratios
 Not significantly different from a
manual or mechanical system