Chapter 6 Auditing in Computerised Information System Enviroment

1. CHAPTER 6
AUDITING IN COMPUTERISED
INFORMATION SYSTEM
ENVIROMENT

2. 4.1 Understand The Basic Approach To
Computerised Information System
(CIS)

3. 4.1.1 Changing Information Of Technology
And its Implication for Auditing
• People are constanly looking for online activities and
expect faster delivery.In accounting well as auditing,IT
plays a vital role in producing reliable and timely
financial statements and reports.
• Most companies use IT to improve company internal
control system through the addition of new control
procedure through computer and replacing the manual
control due to the likelihood of possible human error.

4. Electronic Data Processing (EDP)
Reporting
Business
Transacti
on

5. Electronic Data Processing (EDP)
Source Document:
•invoice
•revenue receipt
•payment voucher
•cheque
The Basis Financial Reporting:
•SOFP
•Profit and Loss Account
•Statement of Cash Flow
•Statement of Charge In Equity

6. Advantages and Disadvantages of
Using IT Systems
Advantages Disadvantages
Easier to have instant data
processing compared to
manual data processing
The use of electronic data
processing have resulted in
decreased vacancles for job
searchers ike accountant
more accurate and affective
time of transaction
high cost for companies as
effective electronic data
processing software tents to
be expensive
increase performance
especially in manucfacturing
industriesand related
industries due to improved
the incentory automated
system
additional cost fir support and
backup systems in the events
of power failure

7. Implication
From manual control to electronic enviroment:
Traditional paperwork in which the auditor can see and feel the
printed marks evidencing transaction are carried out online and most
cases in 'real time'
Generally looks for the authorizing signature on the papers
evidencing the transaction and electronic
It processing enviroment such authority is evidence by the user of
identification codes and passwords which are all physically invisible
The level of complexity can be classified into 2 level that is low and
high

8. 4.1.2 Determine the Level of Complexity in
Computerized Information System
1. EPD system can be defined by their technical complecity and the
extent to which they are used in an organization
2. Technical complexity:
•Online-line processing
•All online system allows direct acces into the computer.
Transactions can be put directly into the system so that master files
are update all the time the entry is made

9.  Communication systems
• Communication channels can connect the computer
directly to users anywhere in the world.
 Distributed processing
• When the computing function is apportioned among
CPUs spread geographically and connected by a
communication system.
 Data base Management
• As the volume and users of computer-processed data
expand, data on different files are often redundant.

10. 4.1.3 General Control CIS
Control Description
The IT control environment • The IT government structure .
• How IT risk are identified, miligated
and managed
• The information system, strategic
plan and budget.
• The organizational structure and
segregation of duties.
Day-to-day computer operation • Acquisition,installation,configuration,i
ntergration and maintanence of the IT
infrastucture.
• Delivery of information services to
user.
• Management of third-party provider

11. Access to program and data • Security of password
• Internet firewalls and remote
access controls
• Data encryption and cryptografic
keys
Program development and program
changes
• Acquisition and implementation of
new applications
• system development and quality
assurance methodology
Monitoring of IT opertions • Policies and procedures regarding
the information system and
reporting that ensure that user
comply with IT general control.

12. Application Control On CIS
1. Application control is controls within a computer
application to ensure-completeness, accuracy of
input,processing and validity of the resulting
accounting entries.
2. The main aim is to ensure validity,completeness and
accuracy of accounting data.
3. Application control classified into:
- inputs control
-processing controls
-output controls

13. An application may be considered be complex when:
a)The volume of transaction is such that users would find
it difficult to identify and correct error processing.
b)The computer automatically generate material
transactions or entries directly to another application
c)The computer perform complicated compulations of
financial information and automatically generates
material transactions.

14. Application Control On CIS
1. Application control is controls within a computer application to
ensure-completeness, accuracy of input, processing and validity of
the resulting accounting entries.
2. The main aim is to ensure Validity completeness and accuracy of
accounting data.
3. Application controls classified into :
a) Input Controls
b) Processing Controls
c) Output Controls

15.  Input controls
- The main aim of input controls is to reduce errors in the data
entered in the system for processing.Input controls include
checking and ensuring that:
- Input data are authorized by the appropriate official.
- Data represent valid record of actual transaction.
- Correctly classitied for the purpose of accounting.
-Example:
- Sequence checks
- Batch control

16.  Processing controls
- There are dividen into mechanical and programmed
controls
- Programmed control are done during the system
development to ensure that only data related to a
particular transaction is processed and not
otherwise.
 Output controls
- Control relating to input and processing itself with the final
objective.
- Relates precisely to the original input.
- Represent the outcome of a valid and tested program of
instructions.

17. 4.1.4 The Plan An Audit Strategic
1. Ensure that these is adequate compliance and
substantive procedures and transmitted data are
correct and completed.
2. Apply professional scepticism by cross verification of
record, reconciliation between primary and subsidlary
ledger, questioning and critical assesment of audit
evidencee.
3. The audit which may be affected by the client CIS
environment.

18. Example Of Auditing And Through The
Computer
Internal Control Auditing Around The
Computer Approach
Auditing Through The
Computer Approach
1. Credit is approved for
sales on account
Select a sample of
sales transaction from
the journal and obtain
the related customer
sales order.
Obtain a copy of the
client sales applications
program and related
credit limit master file.
2. Payroll is processed
only
Select a sample of
payroll disbursements
from the payroll journal.
Create a test data file of
valid and invalid
employee ID number.

19. The Posts In IT Department