Page 131 - DCOM204_AUDITING_THEORY

Unit 7: Internal Control

3. Controls over computer applications and environment. Notes
4. Maintenance of control accounts and Trial Balances.
5. Approval and control of balances.

6. Comparison of results of cash, security and inventory checks with accounting records.
7. Limiting direct physical access to assets and records.
8. Comparison of budgetary estimates with actual estimates

9. Physical verification of assets and a system of safeguarding the assets.
10. Appropriate action taken with regard to any differences and discrepancies.

11. Distribution and proper allocation of functional responsibilities.
12. System of operation of accounting procedures for ascertainment of accurate of accurate
and reliable accounting data.
13. Existence of an effective system for the efficient operation of the asset and a well regulated
system for safeguarding of assets.
14. System of managerial review of the work allocated to various individuals in the
organization.
Self Assessment

4. Assume a hypothetical IT audit specialist, who works for the accounting firm of Townsend
and Townsend, LLP. One of the accounting firm's partners, Harold Mobley, requested that
the IT audit specialist review the systems development process at a potential new audit
client, Collins Harp Enterprises. Collins Harp Enterprises develops most of its computer
application software internally. The IT function, which is managed by Linda Seth the IT
vice president, consists of five in-house programmers. The programmers develop and
modify both applications and systems software. Linda provides relatively free latitude to
programmers because she believes that allowing that type of creativity increases the
quality of the software developed. Most of the ideas for software developments come
from Linda Seth based upon her interactions with IT personnel at other companies. Relatively
few requests for software changes come from non-IT personnel at Collins Harp. Minimal
documentation is generated during the software development process. Programmers have
access to live copies of program tapes and disks stored in secondary storage. And, those
programmers have the ability to compile source code programs into object code, and they
regularly forward object code versions of those programs to the Librarian in charge of
secondary storage. While new programs and changes to existing programs are tested,
only the programming staff assists in the testing process. An executive at Collins Harp
asked the audit partner to have someone with good IT training review the systems
development process to identify weaknesses and recommendations for improvements.
Question: Analyses the case and draw your inference. What useful information is provided
by the given case?

7.6 EDP Environment –The New Dimension

The challenges faced by the Auditor are considerable in an environment where the use of the
computer in data processing operations is on the increase. Thus it is possible that while in a
manual system, incompatible functions such as the authority to initiate and execute a transaction

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