Page 169 - DCOM204_AUDITING_THEORY

Unit 8: Auditing in an EDP Environment

The internal auditor should make an assessment of inherent and control risks for material Notes
financial report assertions. The inherent and control risks in an EDP environment may
have both a pervasive and an account specific effect on the likelihood of material
misstatement.

The usual controls based on proper segregation of incompatible functions may be absent
or may be less effective in an EDP environment. This is because the number of persons
involved in the processing of financial information in an EDP environment is comparatively
small.
The continuous expansion of the range of internal auditing services, together with the
limited resources available, have created increased interest in finding new ways which
the internal auditor can achieve his audit objectives more efficiently.

Once the auditor has recognized the availability of computer file of interest in the audit,
he considers methods for using a computer audit package, it is important to understand
how the computers audit package work.

There are various areas in internal auditing for use of audit software packages.
An auditor uses various Computer assisted Audit Techniques (CAATs) to carry out audit
procedures while auditing through the computer viz. Test Data Approach, Integrated Test
Data Approach and Generalized Audit Software.

8.11 Keywords

CAATs: Computer assisted Audit Techniques
Data File Interrogation: Data File Interrogation is a method which is used to interrogate financial
data files. It is a form of substantive testing, as it involves the direct examination of transactions
and balances.

EDP Audit: A process of auditing in a computerized environment.
EDP Environment: Exits when a computer of any type or size is involved in the processing by an
entity of financial information of significance to the audit.

GAS: Generalized Audit Software
Generalized Audit Package: GAPs are standard packages developed by software companies
specifically for the purpose of auditors for auditing data stored on computer.

Substantive Tests: Tests designed to obtain evidence to verify balance of an account or a specific
financial statement assertion.
Test data techniques are used to conduct audit by way of entering sample of transactions into
client’s computer system and comparing the output with predetermined output to make sure
that the output being generated by client’s computer system is correct.

8.12 Review Questions

1. Describe the planning process of an internal audit in an EDP environment.
2. Explain the problems encountered in an EDP environment.
3. Describe the internal audit practices in relation to computerized system.
4. Discuss the Computer assisted Audit Techniques (CAATs).

5. Distinguish between the Audit around the computer and audit through the computer.

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