Page 165 - DCOM204_AUDITING_THEORY

Unit 8: Auditing in an EDP Environment

software professionals and large firms of auditors. The functions which can be performed Notes
through GAS are as follows:
(a) Examination and review of records based on auditor’s criteria: The computer can
scan the records and point out the exceptions to the criteria established by auditor.
For example, software can be designed to scan accounts receivable balances for
amounts exceeding the credit limit.
(b) Selecting and printing audit samples: The computer can be used to select and print
audit samples using statistical or judgmental sampling techniques.

Example: Receivable accounts may be selected for confirmation using random sampling
tables and the computer might be used to print the confirmation letter and address on the
employees.
(c) Testing calculations and making computations: GAS helps the auditor to test the
accuracy of computations in client’s data files with greater speed as compared to a
manual system.

Example: The auditor can calculate the bad debts to sales ratio for the present year and
compare it with the past years to ensure reasonableness of bad debts written off during the year
under audit.
(d) Comparing data on separate files: An auditor can compare data on separate files to
determine whether compatible information is in agreement. Differences, if any,
should be reconciled and investigated. Examples include comparing, paid vouchers
to cash disbursement through cheques and purchases of inventory as per stock
records to creditors file.
(e) Summarizing data and performing analysis: The auditor summarizes and
reorganizes client data for his purposes. This can be done earlier with the help of
GAS.

Example: He may want to determine the chances of recovery of debtors by looking at
the ageing schedule or summarize inventory turnover statistics to determine slow moving
inventory items.
(f) Comparing audit data with client’s records: Audited data, must be converted to
machine readable form and may be, then, compared with the information in records
of the client.

Example: Comments made by the auditor of inventory quantities on hand may be
compared with the quantity shown in the perpetual inventory records or stock verification
sheets of the client.
From the above discussion, it is apparent that the use of generalized audit software can greatly
assist the auditor in performing compliance substantive tests. However, this use is limited by the
availability of client’s data, auditor’s ingenuity and the strength of client’s internal control system.

8.9.4 Uses of CAAT

CAAT may be used to perform following audit procedures:
1. Detailed and in-depth test of transactions and balances: The auditor can check the
transaction in-depth and in detail, since he can select a larger sample size. There is a lot of
time saving, while applying CAAT, thus he may apply more time to analyse a transaction.

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