Becker AUD 6.3 - The Effect of Information Technology on Audit Flashcards Preview

AUD CPA Review - (Becker, Roger, Wiley, NINJA) > Becker AUD 6.3 - The Effect of Information Technology on Audit > Flashcards

Flashcards in Becker AUD 6.3 - The Effect of Information Technology on Audit Deck (14):

True or False:

(1) Entity (client company)'s use of Information Technology (IT) affects both the Evaluating Internal control and Procedures in getting audit evidence.

(2) The Audit objectives are not the same in computerized environment as they are in manual environment.

(1) True.
It changes the procedures on testing internal control on IT used in client company and how to collect audit evidence from IT systems used in the company's accounting systems and others.

(2) False.
Audit objectives are the SAME for computerized environment and manual environment. There is NO difference.


What are the positions for segregation of duties in an IT environment?

Hint: there are 5.

(1) Control team
(2) Operators
(3) Programmer
(4) Analyst (system)
(5) Librarian


If an auditor is auditing an company that goes all computerized (i.e. no paper), what does the auditor do in this case to performing its audit tests.

Hint: the word continuous

Auditor performs the audit on a continuous basis.


Substantive testing alone is suffice in auditing a company's IT environment?


Substantive testing alone will not suffice.

Need to test internal controls in order to assess control risk esp. in a highly computerized environment.


What is CAAT?

CAAT = Computer assisted audit technique.

Focus on: Input and processing tests.


Name the 5 CAAT approaches.

(1) Transaction tagging
(2) Embedded audit module
(3) Test Data
(4) Integrated Test facility (ITF)
(5) Parallel Simulation


What is Transaction Tagging?

Transaction tagging = place a marker on a specific transactions and follow it through the client's system to determine if the computer program.


(1) What is Embedded audit module?

(2) Embedded is the only method to extract and analyze data in a ___ environment.

(3) What is its disadvantage?

(1) Sections of application program that extract and analyze transaction data for auditor.

These are built into the application program when the program is developed.

(2) Computerized environment

(3) Disadvantage: the auditor required to be part of the system design of the application


(1) What is Test data?
Examples of test data?
Advantage in test data?

(2) What is integrated test facility?
Examples of dummy accounts used in integrated test facility.

(3) Are clients informed that a test is being run in an Integrated Test facility approach?

(1) Test Data = test inputs / entries to be entered in an "Off-line" client computer program under auditor control to see what the results generated in client program.

Examples of test data: invalid #s, Excess pay rate, excess hours.

Advantage = No affecting live client files.

(2) Integrated Data = mixed live data and dummy data to be processed in "on-line" client program.s
For reporting, separate live data and test (dummy) data by processing test data to Dummy simulated accounts.

Examples of simulated / dummy accounts: Fictitious customer, branch, vendor, etc.

(3) No, they are not informed.
This is done so to ensure auditor obtains accurate audit evidence (not altered audit evidence).


(1) What is parallel simulation?

(2) What is source code comparison program?

(1) Parallel simulation:

Auditor re-process / process client live data in an auditor's created own software and compare results to the client's own program.

(2) Source code comparison program:
Compare two versions of the same software to see if there is any changes in the coding that indicates an "unauthorized program change."`


(1) What is GASP?

(2) Advantages of GASP?

(1) GASP = Generalized audit software packages
Used to do tests on client's computer to extract and analyze data.

Auditor selects and specifies what tests to be made inside the GASP on the client program.

(2) Advantages:
* Test more samples, test higher % of transactions = more reliable audit
* Require little technical knowledge on client's hardware and software features
* Reduce audit time / audit costs.


When auditing with a company a.k.a. use microcomputer in auditing, to achieve efficiency it requires the selection of what two items?

Selecting both:

(1) Appropriate audit tasks
(2) Appropriate Audit software for selected tasks


Advantages with Auditing with a computer a.k.a. use microcomputer in auditing - what are they?

(1) Reduce math errors (random errors)

(2) Auto-cross reference / linking Lead schedules to working trial balance and to F/S on the $$ amounts.

(3) Save time via Auto prepare F/S, tax schedules, consolidating schedules

(4) Reduction in Supervisor review time via:
* Legible printouts (reduce bad handwriting)
* Less time to review and prove footings, postings, ratio calculations, and cross references.

(5) Auto perform comparisons, i.e.
* $$ in prior year to current year
* % difference in prior year to current year

(6) Enhanced client service i.e.
* No need prepare lead schedule
* Easy-to-read, more legible adjusting entries
* Enhanced analytical info
* Review F/S draft while auditors still in field.

(7) Improved morale and productivity because of reduced time in doing tedious clerical work.

(8) Not required to access client data when audit client data with a computer.


Disadvantage of:

(1) IT system in general in client company

(2) Auditing with a computer a.k.a. use microcomputer in auditing

* Systemic errors exist, i.e. faulty programming, or incorrect tax rate or incorrect pricing set inside program.

* Unauthorized entry/override causing misstatement on financial data

* High chance of no paper trails and electronic log of inputs made in program can be altered.

(2) Audit documentation may NOT contain ready-to-see Calculation details.

Example: Excel-sheet like document only show results of calculation but not details on how calculations were made.