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Unit 8: Auditing in an EDP Environment

In electronic data processing, on the other hand, there are often no transaction – creating Notes
documents and no visible transaction trail. For example, if there is direct feeding of data
into computer, there may not be any physical input documents, e.g. voucher, invoice,
receipt, etc. and no transaction trail.

Example: In an online, system, salespersons may directly feed sale transactions in the
computer without any supporting documents, or there may be certain transactions generated by
the system based on program instructions such as sending reminders to customers who have
defaulted in payment.

Therefore, to assess how electronic data processing may influence the audit examination
process, he should consider the availability of data
(a) Entered in computer,

(b) Retained in data files, and
(c) Generated for outputs.
The data may be available only in machine – readable form and accessible only for a brief
period. In certain cases, the auditor may have to request the client to retain any particular
data for examination. Lack of visible inputs increases the risk of errors remaining hidden,
which is in direct contrast to manual accounting system where such errors are visible due
to presence of physical input documents.
3. Concentration of processing of information in few hands: In EDP environment, only a
small number of persons process the entire information. As against this, in the manual
system, there is division of the same work among several persons. As a result, customary
controls based on segregation of diverse functions may be absent or ineffective. Further
persons operating the electronic data processing system achieve expertise as regards the
sources of data, manner of processing, and generation and distribution of output. Some
times they may use their exclusive control over electronic data processing systems to
change the data or the program itself, to commit fraud. Probability of such fraud is greater
in organizations having systems like “Electronic Data Interchange” where almost entire
data and programs are only available at the central office or few locations.
4. Possibility of errors: While electronic data processing reduces the risk of human errors
like calculation mistakes, any error in programming may result in incorrect processing of
all transactions. Moreover, in the absence of continuous check by observation of errors as
in manual system, errors in electronic data processing may remain hidden for long. Further,
there is also likelihood of errors if persons, without authority to access data, make changes
in the stored data.
5. Increased management supervision and effective auditing: Electronic data processing
systems makes it possible for management to review and supervise the operations of the
business. This is because it will have a more effective internal control system through
several analytical tools generated by electronic data processing.

The auditor can also use computerized auditing tools to make the audit examination more
effective. In fact, the electronic data processing systems have in-built software and hardware
controls, a feature not present in the manual system.
8.4.2 Advantages of EDP Systems in Auditing

1. EDP systems are more reliable: A computers works as programmed. If the programming
has taken into account all possible circumstances, the computer will work more reliably

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