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Auditing of information systems & computer-assisted audit techniques

Auditing of information systems & computer-assisted audit techniques. Learning Objectives: Audit process Audit approaches Computer-assisted audit techniques (CAAT) Applications. Audit process. Audit objectives Audit planning Test of controls (SOX Section 404) Substantive tests.

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Auditing of information systems & computer-assisted audit techniques

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  1. Auditing of information systems & computer-assisted audit techniques Learning Objectives: Audit process Audit approaches Computer-assisted audit techniques (CAAT) Applications

  2. Audit process • Audit objectives • Audit planning • Test of controls (SOX Section 404) • Substantive tests

  3. Nature of audits • Labor-intensive • Highly repetitive • Time-pressure • Process (not result) oriented

  4. Audit Approaches • Audit around the computer • Audit through the computer • Audit with the computer

  5. Audit around the computer • Computer is a “black-box.” • Suitable only under the following conditions: • The audit trail is complete and visible • The processing operations are relatively straightforward and low volume • Complete documentation are available

  6. Audit through the computer • Should be applied to all complex systems • Test Data • Integrated Test Facility • Embedded Audit Module Techniques • Program Code Checking • Parallel Simulation • Controlled Processing

  7. Audit with the computer • Generalized Audit Software (GAS) • Prepare trial balances • Statistical Sampling • Data analysis • Evaluate sample results • Histogram (chart) Generation • Record Aging (AR and AP) • File Comparison • Sequence verification

  8. Myth of Using GAS • GAS is difficult to use • Nonprocedural languages • GAS is expensive • GAS cannot handle various systems • ASCII code • EBCDIC code

  9. Advantages of Using GAS • Module design • Reusability • Expertise • Efficiency • Self-documentation—user manuals, WP • Statistical sampling—quantify audit risk • Analytical review procedures

  10. GAS in the Market • ACL by ACL Services • Applaud by Premier International • IDEA

  11. Criteria of Selecting GAS • Process various file structures—wk1, xls, rpt, dbf • Review file contents on the screen • Create a data dictionary for all data • Use the modularity approach • Provide audit working papers automatically • Provide the user manual for all modules • Provide data validation feature • Perform statistical sampling • Export files • Provide the on-screen help facilities, tutorial & toll-free technical assistance

  12. Application in Accounting Industry • Ernst & Young: Sweden • Application: Improving Audit Efficiency • Benefits • A standard application make it easier to perform data analysis • Efficiency, audit Sales Process takes only 2-3 hours instead of 12-16 • ACL automatically generate audit reports based on most common factors

  13. Application in Banking Industry • Investors Group Inc.: HQ in Winnipeg, Manitoba, Canada’s largest mutual fund company • Application: ensuring regulatory compliance & improving operations • Benefits • Review client records for cash deposits over CDN$10,000 to comply with reporting mandated by the Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing Act • Monitor mutual fund trading activity continuously to ensure ongoing compliance with a wide variety of industry regulations • Developed a preferred list of suppliers, resulting in overall savings of CDN$600,000 • Develop and implement effective fraud detection controls

  14. Application in Communications Industry • Ameritech: 73,000 employees & $30 billion in assets • Application: business process improvements • Benefits • realized approximately $15 million in value-added recommendations in 9 months • 100% data analysis (no samples)

  15. Application in Government Accounting • Louisiana Legislative Auditor: Baton Rouge, LA • Application: Improving Audit Quality and Efficiency • Benefits • Recover public funds lost due to errors and mismanagement, including an erroneous $173,000 payment uncovered in a five-minute data stratification analysis • Help auditors pull information from a multitude of agency databases faster, analyze audit risks and conduct data testing with higher accuracy and efficiency • Obtain a more detailed understanding of agency data during audits, and create standardized reports to analyze monthly agency transactions

  16. Application in Healthcare Industry • HCA: Nashville, TN • Application: internal audits • Benefits • Identify vendor billing errors on 16,000 units of medical equipment • Locate $17 million in duplicate payments over the course of one year • Test human resources and payroll data for costly reporting and coding inconsistencies • Monitor balance sheets and income statements for unusual activity and abnormal account balances • Prepare continuous monitoring systems to ensure compliance with Section 404 Sarbanes-Oxley legislative requirements

  17. Application in Insurance Industry • Washington National Insurance Company: Phoenix, AZ • Application: internal audits • Benefits • Claim checks reconciliation • Significantly reduced the amount of time the Fraud Unit needed to accomplish their task • Improve policy data analysis • Audit Department is now seen not only as a watchdog but also as a value-added unit/partner that can increase the productivity and efficiency in all other departments

  18. Application in Manufacturing Industry • Lockheed Martin Corporation is a large aerospace and defense electronics manufacturing company • Application: internal audits • Benefits • perform trend analyses on the labor data (180,000 employees) to determine if people are charging time inappropriately, • review vendors performance effectively • perform a test in half an hour with ACL; it took 40 hours before • allow them to conduct a much more thorough analysis

  19. Application in Retail Industry • Office Depot: the world's largest seller of office products • Application: how to improve services with meaningful customer data analysis • Benefits • reduce business risk in A/R • serve customers better • establish clear guidelines service coding & redesign the customer service coding systems • computer-based training (CBT) program for ACL solutions

  20. Application in Utility Industry • Dominion, a major U.S. energy provider; HQ at Richmond, Virginia; annual revenues of more than $10 billion and assets of US $35 billion • Application: access and analyze huge volumes of business transactions efficiently within the company’s SAP systems • Benefits • find duplicate payments in four years (over a million individual transactions) • independently extract and cleanse sensitive company data • create continuous monitoring reports • improve audit controls over accounts payable and vendor master files

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