1. The Impact of Information Technology on the Audit Process
Chapter 12

2. Learning Objective 1
Describe how IT improves
internal control.

3. How Information Technologies Enhance Internal Control
Computer controls
replace manual controls.
Higher-quality
information is available.

4. Learning Objective 2
Identify risks that arise from using
an IT-based accounting system.

5. Assessing Risks of Information Technologies
Reliance on the capabilities of hardware
and software
Visibility of audit trail
Reduced human involvement
Systematic versus random errors

6. Assessing Risks of Information Technologies
Unauthorized access
Loss of data
Reduced segregation of duties
Lack of traditional authorization
Need for IT experience

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

8. Internal Controls Specific to Information Technology
General controls
Application controls

9. Relationship Between General and Administrative Controls
Risk of unauthorized change
to application software
Risk of system crash
Cash receipts
application
controls
Sales
applications
Payroll
Other cycle
GENERAL CONTROLS
Risk of unauthorized
master file update
Risk of unauthorized
processing

10. General Controls Administration of the IT function
Segregation of IT duties
Systems development
Physical and online security
Backup and contingency planning
Hardware controls

11. 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.

12. Segregation of IT Duties
Chief Information Officer or IT Manager
Systems
Development
Operations
Data
Control
Security Administrator

13. Systems Development Typical test strategies Pilot testing
Parallel testing

14. Physical and Online Security
Physical Controls:
Keypad entrances
Badge-entry systems
Security cameras
Security personnel
Online Controls:
User ID control
Password control
Separate add-on
security software

15. Backup and Contingency Planning
One key to a backup
and contingency plan
is to make sure that
all critical copies of
software and data files
are backed up and
stored off the premises.

16. Hardware Controls These controls are built into computer
equipment by the manufacturer to
detect and report equipment failures.

17. Application Controls Input controls Processing controls
Output controls

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

19. Batch Input Controls
Financial total
Hash total
Record count

20. Processing Controls Validation test Sequence test
Arithmetic accuracy test
Data reasonableness test
Completeness test

21. Output Controls These controls focus on detecting errors
after processing is completed rather
than on preventing errors.

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

23. Impact of Information Technology on the Audit Process
Effects of general controls on control risk
Effects of IT controls on control
risk and substantive tests
Auditing in less complex IT environments
Auditing in more complex IT environments

24. Learning Objective 5
Use test data, parallel simulation,
and embedded audit module
approaches when auditing
through the computer.

25. Test Data Approach Test data should include all relevant 1
conditions that the auditor wants tested. 2
Application programs tested by the
auditor’s test data must be the same as
those the client used throughout the year. 3
Test data must be eliminated from the
client’s records.

26. Test Data Approach Application Programs (Assume Batch System)
Control test
results
Master files
Contaminated
master files
Transaction files
(contaminated?)
Input test
Transactions to test
Key control
Procedures

27. Test Data Approach Control test results Auditor-predicted results
Auditor makes
comparisons
Auditor-predicted results
of key control procedures
based on an understanding
of internal control
Differences between
actual outcome and
predicted result

28. Parallel Simulation The auditor uses auditor-controlled software
to perform parallel operations to the client’s
software by using the same data files.

29. Parallel Simulation Auditor makes comparisons between
client’s application system output and
the auditor-prepared program output
Exception report
noting differences
Production
transactions
Auditor-prepared
program
Auditor
results
Master
file
Client application
system programs
Client

30. Embedded Audit Module Approach
Auditor inserts an audit module in the
client’s application system to capture
transactions with characteristics that
are of specific interest to the auditor.

31. Learning Objective 6
Identify issues for e-commerce
systems and other specialized
IT environments.

32. Issues for Different IT Environments
Issues for microcomputer environments
Issues for network environments
Issues for database management systems
Issues for e-commerce systems
Issues when clients outsource IT

33. End of Chapter 12