The Impact of Information Technology On The Audit Process

The Impact of Information
Technology on the Audit

Process
Chapter 12
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley
5-5
Learning Objective 1
Describe how IT improves internal
control.
12 - 2
How Information
Technologies Enhance
Internal Control
Computer controls
replace manual
controls
Higher-quality
information is
available
12 - 3
Identify risks that arise from using an
IT-based accounting system.
12 - 4
Assessing Risks of
Information Technologies
Risks to hardware and data
Reduced audit trail
Need for IT experience and
separation of IT duties
12 - 5
Risks to Hardware and Data

Reliance on
hardware and
software
Data loss
Unauthorized
access
Systematic
vs.
random errors
12 - 6
Reduced Audit Trail

Visibility of
audit trail
Lack of
traditional
authorization
Detection risk
Reduced
human
involvement
12 - 7
Need for IT Experience and

Separation of Duties
Reduced separation of duties
Need for IT experience
12 - 8
Explain how general controls and
application controls reduce IT risks.
12 - 9
Internal Controls Specific to

Information Technology
Information technology controls
Application
controls
General
controls
12 - 10
Relationship Between
General
and Application Controls
12 - 11
Categories of General and

Application Controls
12 - 12
Administration of the IT
Function
The perceived importance of IT within an

organization is often dictated by the attitude o
the board of directors and senior management
12 - 13
Segregation of IT Duties
12 - 14
Systems Development
Typical test
strategies
Pilot testing
Parallel testing
12 - 15
Physical and Online Security

Online Controls:
User ID control
Password control
Separate add-on
security software
Physical Controls:
Keypad entrances
Badge-entry systems
Security cameras
Security personnel
12 - 16
Backup and Contingency

Planning
Offsite storage of critical files is a key
element to a backup and contingency plan
12 - 17
Hardware Controls
These controls are built into computer
equipment by the manufacturer to
detect and report equipment failures.
12 - 18
Application Controls
Application controls are designed for each
software application
Input
controls
Output
controls
Processing
controls
12 - 19
Input Controls
These controls are designed by an
organization to ensure that the
information being processed is
authorized, accurate, and complete.
12 - 20
Batch Input Controls

Financial total
Total for all

records in a batch
Hash total
Total of codes
from all batch
records
Record count
Total of records
in a batch
12 - 21
Processing Controls
Validation test
Correct file,
database, or program?
Sequence test
Correct
processing order?
Arithmetic
accuracy test
Accuracy of
processed data?
Data reasonableness
test
Data exceeds
preset amounts?
Completeness test
Completeness
of record fields?
12 - 22
Output Controls
These controls focus on detecting errors
after processing is completed rather
than on preventing errors.
12 - 23
Describe how general controls affect
the auditors testing of application
controls.
12 - 24
Impact of Information
Technology on the Audit Process
Effects of general controls on system-wide
applications
Effects of general controls on software chan

Obtaining an understanding of client
general controls
Relating IT controls to transaction-related
audit objectives
Effect of IT controls on substantive testing
12 - 25
Auditing in IT Environments
with Varied Complexity
Audit around
the computer
LESS
Smaller IT controls
companies < effective
Audit though
the computer
MORE
Parallel
simulation
Test data
12 - 26
Auditing Around and

Through the Computer
12 - 27
Use test data, parallel simulation, and
embedded audit module approaches
when auditing through the computer.
12 - 28
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

clients records.
12 - 29
Test Data Approach

Input test
transactions to test
key control
procedures
Master files
Contaminated
master files
Application programs
(assume batch system)
Transaction files
(contaminated?)
Control test
results
12 - 30
Test Data Approach

Control test
results
Auditor makes
comparisons
Auditor-predicted results
of key control procedures
based on an understanding
of internal control
Differences between
actual outcome and
predicted result
12 - 31
Parallel Simulation
The auditor uses auditor-controlled software
to perform parallel operations to the clients
software by using the same data files.
12 - 32
Parallel Simulation
Production
transactions
Master
file
Auditor-prepared
program
Client application
system programs
Auditor
results
Client
results
Auditor makes comparisons between Exception report

clients application system output and noting differences
the auditor-prepared program output
12 - 33
Embedded Audit Module

Approach
Auditor inserts an audit module in the
clients application system to identify
specific types of transactions.
12 - 34
Embedded Audit Module

Approach
12 - 35
Identify issues for e-commerce
systems and other specialized IT
environments.
12 - 36
Issues for Different IT

Environments
Network
Environments
Outsourced
IT
Database
Management
Systems
e-Commerce
systems
12 - 37
End of Chapter 12
5-5

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The Impact of Information

Technology on the Audit

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

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

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

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

Risks to Hardware and Data

Reduced Audit Trail

Need for IT Experience and

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

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

Internal Controls Specific to

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

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

Categories of General and

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

The perceived importance of IT within an

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

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

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

Physical and Online Security

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

Backup and Contingency

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

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

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

Batch Input Controls

Total for all

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

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

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

Effects of general controls on software chan

Auditing Around and

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

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

Test Data Approach

Test data should include all relevant

Application programs tested by the

Test data must be eliminated from the

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

Test Data Approach

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

Test Data Approach

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

Auditor makes comparisons between Exception report

Embedded Audit Module

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

Embedded Audit Module

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

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

Issues for Different IT

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

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