Auditing In Computer Environment Presentation

The slides presents audit in computer environment as a revision material for student and practitioners in auditing and related subject matter

1. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIRONMENT
What is
audit in a
computer
environme
nt?

2. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIRONMENT
Approaches
Auditing around the computer
Auditing through the Computer
Auditing with the computer

3. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIRONMENT
Use of computer of audit
automation
Working Papers
Statistical sampling and
analytical procedures
Decision Support System;

4. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTR ENVIRONMENT
Types of software on PC in order to aid his audit
work
Standard software for word processing ,
spreadsheets
Expert systems.
Generally, an auditor can use his PC to assist
for
Production of time budget and budgetary
control .
Analytical procedures.
The maintenance of permanent file
information

5. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIROMENT
The computer systems challenges
lack of visible evidence and
systematic errors. What to do?
techniques available to him,
The internal controls,
 the availability of the data
the length of time it is retained in
a readily usable form.

6. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIRONMENT
Controls over audit computers
Security, and Accuracy (of input,
processing and output). The auditor
should exercise controls when PCs are
used by auditor in their work are as
follows:
Access controls for users by means of
passwords

7. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDITING IN COMPUTER ENVIRONMENT
Controls over audit computers
Back up of data contained on files,
regular production of hard copy; back-up
disks held off the premises.
Viral protection for programs and
Training users.
Evaluation and testing of programs use
6.Proper recording of input data , to
ensure reasonableness of output.

8. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS IN CIS
The internal control over
computer based accounting
system
Application controls
General controls

9. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS IN CIS
The internal control over computer based
accounting system
Application controls:
The objective of application
controls (manual or programmed)
are to
Ensure completeness and
accuracy of accounting records
validity of entries made resulting
from both manual and
programmed processing.

10. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS IN CIS
The internal control over computer based
accounting system
General controls;
relates to the environment CIS
 are developed, maintained and
operated, and which are therefore
applicable to all the applications.
The objectives of general controls are .
The application controls and general controls
are inter-related. Strong general controls
contribute to assurance, which may be obtained
by an auditor in relation

11. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS IN CIS
The specific requirements in order to
achieve the overall objectives of
application controls are:-
Control over the completeness and
authorization of input
Control over the completeness and
accuracy of processing
Control over the maintenance of master
files and the standing data contained
therein

12. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS IN CIS
In order to achieve the overall objective of general
controls, the controls required are:-
Control over applications development
To prevent or detect unauthorized changes to
programs
To ensure that all programs changes are adequately
tested and documented
Control to prevent and detect errors during program
execution
To prevent unauthorized amendments to data files
To ensure that system software is properly installed
and maintained
To ensure that proper documentation is kept
To ensure continuity of operations.

13. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER ASSISTED AUDIT TECHNIQUES
(CAATs)
Definition
Techniques in that the auditors are
afforded opportunities to use either the
enterprises or another computer to assist
them in performance of audit work.
CAATs, are ways in which the auditor may
use the computer in a computerized
information system to gather, or assist in
gathering, audit evidence.

14. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CATEGORIES OF CAAT
Audit software
Test data
Other techniques

15. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CATEGORIES OF CAAT
Audit software:
generalized audit software
specialized audit software or
Interrogation softwares
utility programs and
 existing entity programs.
Regardless of the source of the
programs, the auditor should
substantiate their validity for audit
purposes prior to use.

16. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CATEGORIES OF CAAT
Audit software some uses
Stratify accounting population and
select monetary unit statistical
samples.
Carry out an aging /usage analysis
of stocks
Perform detailed analytical reviews
of financial statements

17. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
TYPES OF CAATs
Test data
Is a CAAT in which test data
prepared by the auditor is
processed on the current
production version of the client's
software, but separately from the
client's normal input data.

18. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
TYPES OF CAATs
Other techniques
embedded audit facilities
Integrated test facility
System Review and control file
( SCARF)
Application program examination
Internal control evaluation via; Flowchart
verification (Logical Path analysis ) ,Program
code verification (Code Comparison
Programs), Printout examination.

19. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CAATs and Sustentative testing
During substantive testing some, CAATs
are used frequently.
Audit software is used extensively to
examine accounting records maintained
on computer files
CAATs assists in carrying out analytical
review procedures

20. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Limits of CAATs
Limits of CAATs
Evaluation of general controls
Use ICQ or the ICE approach.

21. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PROGRAM AUTHENTICITY
Source Program authenticity
guarantee that the correct application
program is being tested.
“Live test” data, integrated test
facilities and embedded audit facilities
as described above are audit
techniques, which help in this respect.
General controls
Copy must be identical to orignal

22. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
KNOWLEDGE BASED SYSTEM
Knowledge based systems
Decision Support Systems and
Expert systems can be used to
assist with the auditors own
judgment and decisions.

23. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MANUAL Vs CAATs
Factors to consider in choosing between CAATs
and manual Techniques:-
Practicability of carrying out audit tests manually
Cost effectiveness of the procedures under
considerations.
Availability of audit time
The availability of appropriate computer facilities and
independence issue
The level of audit experience and expertise.
The extent of possible reliance upon internal audit
work

24. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AN AUDIT IN A COMPUTER ENVIRONMENT
Planning an audit in a Computer
environment
Possibilities of attending during
system development stage
Consideration of use of CAATs
Practicability of manual audit
Expertise

25. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AN AUDIT IN A COMPUTER ENVIRONMENT
Use of CAATS
The pattern cost associated with CAATs,
The extent of tests of controls or substantive
procedures achieved by both alternatives,
Ability to incorporate within the use of CAAT a number
of different audit tests.
Time of reporting

26. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AN AUDIT IN A COMPUTER ENVIRONMENT
In using CAAT,
computer facilities, computer files
and programs are available;
the auditors should plan the use of
CAAT in good time so that these copies
are retained for their use.
Internal auditor CAATs , consider ISA
Availability of computer facilities

27. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROL EVALUATION
Internal control evaluation
ICQ .
Weak controls = extensive
substantive procedures
In determining whether they wish to
place reliance on application controls or
general controls ,the auditors will be
influenced by the cost effectiveness and
ease of testing by the following matters
General controls and application
controls

28. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROL EVALUATION
Check systematic errors and program
intergrity
Manual examination may be useful in
small computer application
Observation, examination of
documentary evidence or reperforming
the procedures may be useful.
CAATs can also be useful

29. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Review of financial statements
Review of financial statements
CAATs (audit software)
e.g analytical review.
The working papers should indicate the
work performed by CAAT, the auditors
conclusion, the manner in which any
technical problems were resolved and
may include any recommendations
about modification of CAAT for future
audits.

30. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDIT TRAIL.
Audit trail.
As the complexity of computer systems has
increased there has been a corresponding loss
of audit trail. Most systems have searching
facilities that are much quicker to use than
searching through print outs by hand.
 This offsets the so- called loss of “audit
trail” to a significant extent. The trail is still
there, although it may have to be followed
through in electronic form.

31. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER SERVICE BUREAUX
These are third part service organization who
provide EDP facilities to their clients
Factor to consider
make or buy decisions
Consider and Analyze the cost benefit;
 Level of management’s own computing
knowledge and their willingness to take
risk to unknown third party;

32. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER SERVICE BUREAUX
Factors to consider
The volume and frequency of processing
requirements ;
The complexity of the program package
required ;The simpler the program the easier
it would be to process in – house on Micro;
 The importance of timelines in processing of
data check the efficiency and economy of DP
The confidentiality of the data being
processed.

33. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Types of Bureaux
Independent companies formed
to provide specialist computer
services
Computer manufacturers with
bureau
Computer users (e.g.
universities)

34. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AND CONTROL EXERCISED BY THE USER
When the system using bureaux is
set up it is essential that
a full feasibility study and
system design should be carried
out.
In practice the bureau may provide
assistance in performing these
tasks.

35. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AND CONTROL EXERCISED BY THE USER
The control should include :
Prior vetting of bureau standards ;
Input controls at preparer’s end; bunching
and providing or authorizing in the same
way as usual;
Transit controls ;Physical transfer of
documents ;
batch controls ,physical security and
authorized personnel;

36. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PLANNING AND CONTROL EXERCISED BY THE USER
The control should include :
Electronic transmission of data ;batch totals,
passwords and possibly encryption coding for very
sensitive data;
Control over and action on rejection; there must be
strong control over the level of rejections; whose
fault, the bureaus or ours?;

37. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER SERVICE BUREAUX
Output controls :logging /registering
receipt of output material and original
documentation ,distribution and filing;
Master file amendment controls;
suggested control include the usual use of
pre-numbered properly authorized forms.
Special control of periodic print out of all
master file amendments;
 Adequate insurance covering loss of data
or documents and computer breakdown at
the bureau itself ;The external auditor
review of bureau controls ;

38. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER SERVICE BUREAUX
A third party review –an independent firm to carry
out review of internal controls, both the general
and application based. The report is then made
available to the auditors of clients of the bureaus.
This saves the bureau having to make provision
for many different sets of auditors all asking to run
CAATs on the bureaux system and complete
roughly similar ICQ/ICE forms.
Direct evaluation of the bureau by the auditor
using the CAATs , ICQ and ICE.;
 Standby /back up /emergency arrangement ;

39. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER SERVICE BUREAUX
The compliance and substantive testing of
programmed procedures, the CAATs such
as discussed above are appropriate where
the client has the data and files on the
premises. They may not be possible in
context of the computer service bureau.
The client may have to arrange to have
files copied by the bureau or supplied to
the auditor for testing.

40. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONTROLS IN ON-LINE AND REAL TIME SYSTEMS
Controls in real time systems
The main control problem is that primarily the
concern is on large, multi–user systems with
terminals (dumb terminals or networked PCs)
;The same person is often responsible for
producing and processing the same information.
Internal check ,supervisory controls should be
strengthened (segregation of duties) ;The ability
of a person using remote terminal to gain access
to databases at will results in the need for
special controls to ensure that files are neither
read nor written to (nor destroyed).

41. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONTROLS IN ON-LINE AND REAL TIME SYSTEMS
Physical controls;
Operating system; Use passwords( or lockwords)
or special badges or key; Restriction by the
operating system of a certain users to certain
files .eg wages dept can be given access to only
wages file; Logging of all attempted violation of
the above controls .eg Automatic shut down of
the PC or terminal used; All violations should be
speedily and thoroughly investigated
Application controls; Validity checks on input;
Reporting of unusual transactions; Passwords

42. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
DATABASE MANAGEMENT SYSTEMS (DBMS)
Main controls; Control to prevent or detect unauthorized
changes to programs;
No access to live program file by any personnel except
for the operation personnel at the central computer;
Password protection on programs;Restricted access to
the central computer and terminal ;Maintenance of
console; Periodic comparison of live production
programs to control copies and supporting
documentation.

43. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
DATABASE MANAGEMENT SYSTEMS (DBMS)
Main controls; Controls to prevent or detect error
during operation;
Restriction of access to terminals by use of
password; Satisfactory application control over
input , processing and master file ;Use of
operation manuals and training all
users;Maintenance of logs showing unauthorized
attempts to access; Physical protection over data
files ;Training in emergency procedures
Controls to ensure integrity of the database system;
Restriction of access to data dictionary

44. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
DATABASE MANAGEMENT SYSTEMS (DBMS)
Controls to ensure integrity of the database
system; Restriction of access to data dictionary(
point of definition and interrelationship of data);
Segregation of duties between data processing
manager and data base administration
personnel; Liaison between database
administration function and systems
development personnel ;Preparation and update
as necessary of user manual in conjunction with
data dictionary

45. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
DATA BASE MANAGEMENT SYSTEM
The audit of DBMS creates particular problems as
the two principal CAATs , test data and audit
software, tend to work unsatisfactorily on
programs and files contained within such system.
The auditor may, however, be able to use
embedded audit facilities. Close liaison with the
internal auditor may provide audit comfort. The
auditors should if possible be involved at the
evaluation, design and development stages, so that
they are able to determine their audit requirements
and identify control problems before
implementation.

46. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
SMALL COMPUTER SYSTEM
Control problems in small computer
systems
The problems surrounding PC’s can be
grouped as ;
Lack of planning over the acquisition
and use of PCs;
Lack of documentary evidence ;
Lack of security and confidentiality.

47. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COMPUTER FRAUD
Input fraud :
Processing fraud;
Fraudulent use of computer
system;
Output fraud;

48. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
FACTORS- RISK TO COMPUTER FRAUD
Increase in computer literacy –
Communications e.g. telephone and
PCs and hackers
Reduction of internal
Improvements in quality of software and
increase in implementation of good
software has not kept pace with
improvements in hard ware

49. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
COUNTERACT COMPUTER FRAUD
Planned approach to counteract computer fraud.
All staff should be properly trained and should
fully appreciate their role in computer function
Management policy on fraud should be clear
and firm
A study should be carried to examine where the
company is exposed to possible fraud
A company should map out an approach or plan
in each area of the business to tackle and
prevent fraud.

50. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONTROLS TO PREVENT COMPUTER FRAUDS
As with a control system, three areas to examine are;
prevention, detection and correction
Access to the computer terminals and other parts of the
computer should be restricted
Access to sensitive areas of the system should be logged
and monitored
Errors logs and reports should be monitored and
investigated on regular basis
Staff recruitment should include careful vetting ,include
taking up all references
Expert systems software may be used to monitor unusual
transactions

51. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
DEVELOPMENTS IN COMPUTERIZED
ENVIRONMENT
Many auditors are now finding their clients
conducting business through the internet.
As always, the principle audit concern ,
will be controls over the use of the
internet and the strength of audit
evidence obtained through the internet

52. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNET
Controls over the Internet
Unauthorized use of the internet
Staffs may use internet for unauthorized
purchases
Staff may use internet for accessing data
which have a costs (call)
People may be able to access “business “
internal systems via the internet and obtain
confidential information or launch virus which
disrupts internal systems

53. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONTROLS IN INTERNET…
Controls from these risks include
Use of passwords,
Disabling certain terminals –
Firewalls –
Authorization the technique make sure that a
message has come from an authorized
sender
Virus control software –regular updating
Physical controls ;against fire, damage etc

54. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
AUDIT EVIDENCE IN THE INTERNET
Audit evidence in the Internet
Certain general observations can be made about audit
evidence obtained through the Internet
Internet evidence generated by the auditor will be
stronger than evidence generated by client. Comfort
may be obtained if the auditor can access the internet
and test what the client has posted
Internet evidence can be obtained in written form and
thus stronger than oral evidence
If the internal controls mentioned above are strong
,the auditors will have more confidence in the quality of
evidence

55. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
WHAT ABOUT E-MAIL?
Email may have numerous advantages in
reducing office paperwork and speeding up
communication, but it also has dangers from an
audit point of view. e.g. unscrupulous employee
in a large organization might find it quite easy to
send and e-mail from his or her boss’s computer
authorizing a substantial bonus /payrise
H/W; what controls could you put to prevent this
from happening

56. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONTROL IN INTERNET SYSTEM
Control of network system is of uttermost
importance .the auditors must be able to analyse
the risk of unauthorized access such as line tapping
or interception and to evaluate preventive
measures
Authentication programs and encryption are used
for security .the auditor must understand those
matter and should be able to make
recommendations on implementation.
 Password security is extremely important, and the
auditors may be called upon to recommend
complex password procedures for sophisticated
systems.

57. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
ELECTRONIC DATA INTERCHANGE
Electronic data interchange (EDI) is now used very
widely because it cuts the task of re-inputting data
that has already been input into a system in
electronic form, saving time and improving
accuracy
EDI is authentic? What authorization measures
are in place to ensure that transactions above
certain value are properly authorized before
being transmitted or accepted?
What is the legal position of the two parties if the
transaction is disputed?
Encryption and authentication offer some help, as do
transaction logs that identify the originator or any
transactions generated and transmitted.

58. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
WHAT IS EDI
Is the automated computer-to-
computer exchange of structured
business transactions between an
enterprise and its vendors,
customers, or other trading
partners in a standard format, with
a minimum of human intervention

59. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONSIDERATION OF AUDIT
STANDARDS
ISA 315, “Understanding the Entity
and Its Environment and Assessing
the Risks of Material Misstatement”
and
 ISA 330, “The Auditor’s
Procedures in Response to
Assessed Risks” became effective.

60. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONSIDERATION OF AUDIT STANDARDS
Major issues to be considered by an
auditor as per ISA
An auditor should consider new CIS
environment affects the audit
The overall objective of audit in CIS audit
never changes.
The design and performance of appropriate
tests of Controls and Substantive
procedures to achieve the audit objective
are likely to change.

61. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CONSIDERATION OF AUDIT STANDARDS
Major issues to be considered by an
auditor as per ISA
The existence of computer is likely to have
an impact on the clients inherent risk and
control risk.
The auditor should have sufficient
knowledge of CIS to plan, direct supervise
and review the work performed.
The auditor should consider whether
specialized CIS skills are needed in an
audit.

62. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
ISA
The ISA makes it clear that auditors should have
sufficient knowledge of the CIS to perform such
audit effectively.I t is not necessary for overly
member of audit team to be a computer expert
auditors must consider need for specialized CIS
skills.ISA 620 “using the work of expert” is relevant.
In planning the portions of audit which may be
affected by the clients environment the auditor
should obtain an understanding of significance and
complexity of CIS activities and the availability of
data for use in the audit.

63. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
ISA
Auditor must obtain understanding of
accounting and IC sufficient to plan an
effective approach.
Where CIS is significant, the auditor must
assess the effect of the CIS on in hereunto
control risk.
Complexity normally increases risk and
pensive deficiencies in program
development, mtc, physical security and
access controls would have an effect on
all applications that the system served.

64. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
ELECTRONIC COMMERCE
IAPS 1013
Is any Commercial activity that takes place by means
of connected computers. E.g. offering goods for sale
directly from office computer; the purchasers’
computer and office computer is connected over
Internet.
How do we audit ex-commerce?
International Audit Practice Standard ISPS 1013
(IAP’s) in intended to assist auditors in identifying and
assessing the new risk to which the business in
exposed when it undertakes e-commerce
transactions.

65. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MAJOR AREAS OF FOCUS BY THE IAPS 1013
The skill and knowledge required to
understand the implications of e-
commerce on audit
The extent of knowledge an auditor
should have about the client’s
business environment and
activities.

66. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MAJOR AREAS OF FOCUS BY THE IAPS 1013
The business, legal, regulatory and
other risk faced by entries engaged
in e-commerce transactions.
The effect of electronic records on
audit evidence.
The statement may be also helpful
to the auditor of any business
engaged in e-commerce.

67. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
What is an IT audit?
Like operational, financial and compliance auditors,
Information Technology (IT) auditors work to:
 Understand the existing internal control
environment
 Identify high risk areas through a formal
methodology
 Ensure that adequate internal controls are in place
and operate effectively (through the testing of
said controls)
 Recommend control implementation where risk
exists

68. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Why IT AUDIT?
Because of Information Technology RISK!!
Risk: The probability that a particular threat
exploits a particular vulnerability (i.e. an issue
which may impact ability to meet objective).
Threat: Event or entity with the potential to
cause unauthorized access, modification,
disclosure, or destruction of info resources.
Vulnerability: Weakness in a system control, or a
design flaw, that can be exploited to violate
system, network, or data integrity.

69. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
What Reduces IT Risk and
What about any Remaining Risk?
Internal Controls (i.e. safeguards)
Control: Protective measure implemented
to ensure company assets (IT or
otherwise) are both available and accurate
in order to meet the business
requirements of that asset.
Residual Risk: The risk that is left over
after reasonable internal controls have
been both evaluated and implemented.
Internal Controls do not eliminate all risk!!

70. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS OTHER MATTERS
The are two major types of controls:
Application Controls
General Controls.

71. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants

72. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
What about OTHER types of audits that may impact
Security Administration functions
Traditional Audit Types:
Financial – “opinion” audits (CPAs)
Operational – process audits – now
includes environmental & construction
Compliance – laws/regulations and
policies, standards, and procedures
IT – usually considered “operational”
unless performed so “opinion” auditors
may “rely” on financial info provided
Hybrid - Integrated Audit – today almost all
audits are actually hybrid

73. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Operational Audits
Review operating policies/procedures
Documented policies/procedures?
Informal policies/procedures?
Work flow examined (thru flowchart or
description requested/developed)
Controls identified and documented
Examine the business process and
recommend improvements – control
related or efficiency/effectiveness

74. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS OTHER MATTERS
General Controls:
The purpose of General controls is to
establish a framework of overall control
over the CIS activities and to provide a
reasonable level of assurance that the
overall objectives of IC are achieved.

75. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS OTHER MATTERS
Categories of General Controls:
Organizational and Management control
-Helps to provide a proper
organizational framework including
regression of incompatible functions.
Application development and Mtc controls
-To ensure that applications are properly
developed, tested and maintained.

76. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
INTERNAL CONTROLS OTHER MATTERS
Categories of General Controls:
Operational controls – To ensure properly
authorized access to system and the
detection of errors.
Systems software controls – to ensure the
integrity of the development and usage of
systems software.
Data entry & program controls – to ensure
the integrity of data and program files.

77. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CIS APPLICATION CONTROLS
CIS application controls.
The purpose of this control is to
establish specific control procedures
over the acting applications to provide
reasonable assurances that all
transactions are authorized, recorded
and processed, completely,
accurately and on a timely bases.

78. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CIS APPLICATION CONTROLS
The Controls Include:
Controls over input – designed to provide
reasonable assurance that:-
Transactions are properly authorized before
being processed by the computer transactions
are accurately converted into machined
readable form and recorded in the compute
data files.
Transactions are not lost, duplicated or
improperly changed.
Processing errors are identified and corrected
on timely basis

79. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
CIS APPLICATION CONTROLS
The Controls Include:
Control’s over output – designed to provide
reasonable assurance that:-
Results of processing are accounts; Access to
output is restricted to authorized personnel;
Output is provided to appropriate authorized
personnel on timely basis ;Normally the
technique which control the accuracy of input
and processing while help to control master file
date; Since master file standing data items are
used many times over in processing, they take
on greaten importance than transaction date
and more costly controls such as one - for – one
checks may be justified.

80. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MANUAL AND PROGRAMMED CONTROLS
Many controls over computers are manual controls, and
prodding that the manual controls exercised by
users are sufficient to provide reasonable assurance
of the completeness, accuracy and authorization of
output, test of control may be limited to those
manual controls. In a payroll system, for example, if
users test check gross pay, deductions net pay and
authorization at the output stage, and if they
compare net pay with approved bank transfer
documentation and perform regular bank
reconciliation’s; there may be no need to test
programmed controls.

81. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MANUAL CONTROLS
Other Controls:
Manual Controls
Physical Controls:
-Is a matter of common sense.
-Limit access to a computer room,
-Locks and keys, only to specified
people
-Prevention of smooking.
Back-up of disks:
-Create and update an identical back up
disk for every disk in the system; Data
files&Program files; The disk should be
stored in separate place.

82. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
MANUAL CONTROLS
Other Controls:
Manual Controls
Data filing:
-Each disk should be labeled clearly and filed
securely.The labeled disks should be filed in special disk
boxes to provide a degree of protection against liquid
being spoilt on the disks or their being bent or plied.
Documentation: It is vital, as it provides both a support
system for work already stored on disk and filed, and
progress report on data currently being processed or
updated.
Staff Training:
Proofing:There is always room for manual checking or
proofing, to control data on disk.

83. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PROGRAMMED CONTROLS
Programmed Controls:
Passwords; Date/time stamps for compass on
of two revisions of data; Prompts – Asking the
user to continue with an action or not.
Check Digit: A means of control on that they
ascertain whether or not a number, such as
ISBN is valid. E.g. customer account No. The
computer will detect of the number is ever
input incorrectly.
Batch totals and hash totals:

84. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
PROGRAMMED CONTROLS
Programmed Controls:
Reasonable checks: Checks to ensure that
data input is reasonable given the type of input
it is e.g. A payroll system would check that his
recorded for a falls within a range of 30 to 50.
Existence checks: Checks to ensure that the
data input is valid by checking that the entity
already exists in the system. E.g. employee
number.
Dependency checks: Data input fields can be
compared with other fields for reasonableness.

85. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
SMALL STAND ALONE MICRO-COMPUTER
Main problems.
Internal Controls.
Major controls appropriate in
this environment are:-
Authorization:
Physical security
AUDIT PROCEDURES
Substantive tests

86. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
Internal controls
Inherent limitations of the system of IC in
elimination of frauds & errors.
The need to balance the cost of control with its
benefits; The fact that IC are applied to systematic
transaction, not one-off year-end adjustments,
which are often larger and subject to error; The
potential human error; Possibility of circumvention
of IC through coolness in of managers or
employees with other parts inside /outside the
entity; Abuse of controls or override of controls e.g.
ordering of personal goods; Obsolescent of
controls

87. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
FURTHER CONSIDERATION OF CAATs
Further considerations of CAATs
ISA requires auditors to obtain appropriate audit
evidence to be able to allow reasonable conditions
on which to base their opinion.
Advantages of CAATS:
Helps to test larger number of data hence increase
confidence in their opinion; Help’s to test Accounting
Systems its records (Tables & Disk files) rather than
relying on testing printout; Are cost effective once set
up for obtaining audit evidence; Comparison can
easily be made from clerical audit work hence
increase confidence.

88. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
OTHER DETAIL MATTERS
Difficulties of using computer
programs cost.
Cost; Changes to clients system; Small
installations PC; Over –elaboration;
Larger quantities of output; Version of
file used for lest.
Test Data:
Is a data submitted by the auditor for
processing the clients computer-based
accounting system.

89. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants
OTHER DETAIL MATTERS
Major approached to the use of test data
Using live data
Using dummy data in a normal
production nun.
Using dummy data in special nun.
Difficulties of test data:
Cost
Limited objective
Dangers of live testing
Difficult in recording audit evidence

90. APT FINANCIAL CONSULTANTSMwakalobo@apt financial
consultants