Auditing and assurance services 14e by arens chapter 12

The Impact of Information
Technology on the Audit
Process
Chapter 12
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Learning Objective 1
Describe how IT improves internal control.

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How Information Technologies
Enhance Internal Control
Computer controls
replace manual
controls

Higher-quality
information is
available
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Learning Objective 2
Identify risks that arise from using an ITbased accounting system.

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Assessing Risks of
Information Technologies


Risks to hardware and data



Reduced audit trail



Need for IT experience and
separation of IT duties

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Risks to Hardware and Data
Reliance on
hardware and
software

Data loss
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Unauthorized
access

Systematic
vs.
random errors
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Reduced Audit Trail
Visibility of
audit trail
Lack of
traditional
authorization

Detection risk

Reduced
human
involvement
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Need for IT Experience and
Separation of Duties


Reduced separation of duties



Need for IT experience

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Learning Objective 3
Explain how general controls and application
controls reduce IT risks.

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Internal Controls Specific to
Information Technology

Information technology controls

Application
controls

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General
controls

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Relationship Between General
and Application Controls

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Categories of General and
Application Controls

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Administration of the IT

Function
The perceived importance of IT within an
organization is often dictated by the attitude of
the board of directors and senior management.

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Segregation of IT Duties

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Systems Development
Typical test
strategies

Pilot testing

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Parallel testing

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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

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Backup and Contingency
Planning
Offsite storage of critical files is a key
element to a backup and contingency plan

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Hardware Controls
These controls are built into computer

equipment by the manufacturer to
detect and report equipment failures.

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Application Controls
Application controls are designed for each
software application

Input
controls

Output
controls

Processing
controls
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Input Controls
These controls are designed by an
organization to ensure that the
information being processed is
authorized, accurate, and complete.

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Batch Input Controls
Financial total

Hash total

Record count

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Total for all
records in a batch
Total of codes
from all batch
records
Total of records
in a batch
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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
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Completeness
of record fields?
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Output Controls
These controls focus on detecting errors
after processing is completed rather
than on preventing errors.

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Learning Objective 4
Describe how general controls affect the
auditor’s testing of application controls.

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Impact of Information Technology on
the Audit Process




Effects of general controls on system-wide
applications

Effects of general controls on software changes


Obtaining an understanding of client
general controls



Relating IT controls to transaction-related
audit objectives



Effect of IT controls on substantive testing

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