LESS COMPLEX IT ENVIRONMENT

No deducted IT personnel.

Limited reliance on automated control, No test of application program.

Accounting system retain much of the traditional source documents such as customer purchase order,
shipping and receiving records, sales and vendor invoices. Manual audit procedure.

Auditing around the computer. System produce enough audit trail.

The focus is on the input output control.

Risks: Access to master file. Risk of computer viruses.

MORE COMPLEX IT ENVIRONMENT

Much of the tradition source documents such as customer purchase order, shipping and receiving
records, sales and vendor invoices, inventory listing, AR sub ledger etc. exist only electronically

Input and processing

Audit through the computer by using Computer Assisted Audit Techniques (CAAT):

1. Test data approach

2. Parallel simulation
3. Embedded module approach (integrated test facilities)
4. Tagging transactions

TEST DATA APPROACH: AUDIT THROUGH THE COMPUTER

Auditors process their own test data (transactions) using the client’s computer system and application
program.

Expectation set. Offline under auditor control.

The system is “expected” to accept or eject certain transactions. Invalid EE #s. excess hours, sales over
credit limit

Auditors compare the actual output to the expected output to assess the effectiveness of the
application program’s automated controls.

Test data should include all relevant conditions that the auditor wants tested. Auditors should design
test data to test all key computer-based controls and include realistic data that are likely to be a part of
the client’s normal processing including both valid and invalid transactions.

Application programs tested by auditor’s test data must be thee same as those the client used
throughout the year. Otherwise useless.

Test data must be eliminated from the client’s records. Reverse the effect of the test

Good for testing of control.

Example: TEST DATA APPROACH

Assume the client’s payroll application contains a limit check that disallows a payroll transaction that
exceeds 80 hours per week.

Auditor prepares payroll transactions with 79, 80 and 81 hours for each sampled week and process them
through the client’s system.

If the limit check control is operating effectively, the client’s system should reject the transaction for 81
hours, and the client’s error listing should report the 81 hour transaction error.

EMBEDDED AUDIT MODULE APPROACH INTEGRATED TEST FACILITY (ITF)

Similar to test of data however the testing is live or online.

Our data… customer system

Need to remove the effect before preparing reports

Use dummy accounts to process live transactions. Got to be careful

Identify unusual transactions for substantive testing

TRANSACTION TAGGING

Client’s data and client’s program

Transaction tagging is where a transaction record is “tagged” and then traced through critical points in
the information system.

PARALLEL SIMULATION:

Auditors often use auditor-controlled software to do the same operations that the client’s software
does, using the same data files (customer)

Form of Going around the computer!

Use for this test:

1. Archive copy of the program. With controlled reprocessing

Compare source code

2. Specifically developed application

3. Generally Audit software package (GASP)

Production transactions Master file

Auditor prepares a program to
simulate all or part of a clients Client Application
Auditor prepared program
Application system System programs

Auditor’s results Client results

Auditor make comparison

between Client application
system output and the Auditors
prepared programs output

Exception report noting

differences

SUMMARY OF AUDITING THROUGH THE COMPUTER

Test Data Software

 Data test approach Auditor Client (offline)
Embedded Audit module Auditor and Client Client (online)
approach Integrated test facility
Tagging transactions Client Client (online)
Parallel simulation Client’s Data Auditor (around Computer)

GENERALLY AUDIT SOFTWARE PACKAGE

Example, Audit Command Language (ACL) and Interactive Data Extraction and Analysis (IDEA)

Access the files from the system

Stratify, age, sort, analyse

Recalculating amounts and total

Reconcile data from the two separate files

Perform statistical analysis

No need to learn how to use the client hardware and software systems