Auditing in EDP Environment/Computerized Audit

uditing in an Electronic Data Processing (EDP) environment, also known as IT or digital auditing, involves examining and evaluating the information systems and electronic data processing systems of an organization. As businesses increasingly rely on technology for their operations, the role of EDP auditing has become vital in ensuring data integrity, system security, and operational efficiency. Here’s an overview:

Auditing in an EDP Environment
**1. Definition and Importance
An EDP environment encompasses all the computer systems, networks, software, and data used by an organization. Auditing in this context is crucial as it addresses unique risks associated with the reliance on information technology (IT), such as data breaches, system failures, and inaccuracies in automated processes. The primary goal is to ensure the accuracy, reliability, and security of financial information processed through these systems.

**2. Key Areas of Focus in EDP Auditing

a. General IT Controls

Access Controls: Auditors examine who has access to the system, ensuring that only authorized personnel can access sensitive data and systems.
Change Management: Evaluating how changes to IT systems are managed, including software updates and system modifications, to ensure they are authorized, tested, and documented.
Backup and Recovery: Reviewing the procedures for backing up data and the plans in place to recover from data loss or system failure.
b. Application Controls

Input Controls: Checking how data is entered into the system to ensure accuracy and completeness.
Processing Controls: Verifying that data processing within applications is accurate and performed as intended.
Output Controls: Ensuring that the output from systems is accurate and only available to authorized users.
c. Data Integrity and Security

Data Validation: Confirming that data within systems is accurate and consistent across different platforms.
Encryption and Security: Assessing the measures in place to protect data from unauthorized access or cyber threats.
d. System Development and Acquisition

Evaluating the processes for developing or acquiring new IT systems to ensure they meet the organization’s needs and comply with security and quality standards.
**3. Auditing Procedures in EDP Environments

a. Risk Assessment

Identifying and assessing risks specific to the IT environment, such as potential for data breaches, system downtime, and data accuracy issues.
b. Testing IT Controls

Performing tests of controls, such as reviewing access logs, testing system functionality, and assessing backup processes.
c. Data Analytics

Utilizing data analytics tools to analyze large volumes of data for anomalies, patterns, and trends that could indicate control weaknesses or fraud.
d. Continuous Monitoring

Implementing automated tools to continuously monitor systems and transactions for compliance with policies and to detect unusual activities in real-time.

1. EDP Environment

2. BENEFIT OF COMPUTERIZED AUDIT
1)Speed:theworkofrecordingoftransactions,preparationof
books,accountscanbedonewithgreaterspeed.
2)Greateraccuracy:thechancesofarithmeticalerrorsand
humanerrorsarereducedtominimum.
3)Greatereconomy:underthemechanizedaccountingsystem,
workcanbedonewithminimumstaff,withminimumcost.
4)Betterrecords:recordspreparedbymachinesareneatand
clean.Itismorelegible,systematicanduniform.
5)Greaterinformation:varioustypesofinformationand
statisticaldataregardingtheoperationofthebusinesscanbe
easilycollected.

3. 6)Interimaccounts:interimaccountscanbeprepared
withoutdelay.Thiswillhelpthemanagement todeclare
interimdividend.
7)Analysisofdata:oncethebasicinformationisfeedintothe
computers,itcanbesortedinmanydifferentwaystoprovide
analysisofstatement.
8)Avoidovertime:theworkofaccountsaredonequickly,the
accountscanbepreparedwithoutanylossoftime.
9)Reductioninauditfee:theworkloadofauditworksis
reducedbythecomputers.Hencethecomputerizedaudit
reducesauditcost.

4. BENEFIT OF COMPUTERIZED
AUDIT
10)Computerizedauditreducesthemonotonyofauditwork
11)Computerizedauditenhancesthereliabilityofaudit
12)Computerizedauditensuresflexibilityintheaudit
programme.
13)Computerizedauditishelpfulforthesmoothfunctioning
ofauditing

5. PROBLEMS OR DISADVANTAGES
1)Itisnotsuitableforsmallbusinessforms.
2)Difficultiestodetecttheerrorsandfrauds.
3)Absenceofsupportingvouchers.
4)Storageproblem
5)Computerfraudsandcomputervirus.
6)Easytomakealterations
7)Itcreatesunemployment.
8)Absenceofinputdocuments.
9)Lackofvisibleoutput
10)Codingproblem.

6. AUDIT APPROACHES IN AN EDP
ENVIRONMENT
Therearethreeapproachestoauditinginan
EDPenvironment.Theyare
1)Auditingaroundthecomputer
2)Auditingwiththecomputer
3)Auditingthroughthecomputer

7. AUDITING AROUND THE COMPUTER
Auditingaroundthecomputerisanaudit
approachunderwhichanauditorcarriesoutthe
auditinthesamewayasinatraditionalorManual
systemexceptthat,insteadofexamininghand
writtenbooks,heexaminescomputerprintouts.

8. Auditing with computers: -
underthisapproach,theauditordoestheauditwork
withthehelpofcomputersthatisgeneralsoftware.
Underthisapproach,auditworkiscarriedoninan
traditionalmanner,butthecomputersoftwareis
usedforcertainoperations.

9. Auditing through the computer
Auditingthroughthecomputermeansmaking
useofcomputerinauditing.Underthisapproachthe
auditorevaluatestheinternalcontrolrelatingtoEDP
andonthebasisofevaluation,hedeterminesthe
nature,timing,andextentofhissustentative
procedures.

10. INTERNAL CONTROL UNDER AN
EDP ENVIRONMENT
Forthecontrolofvariousproblemsconnectedwith
theinstallationandoperationofcomputersinaccounting
andauditing,thereshouldexistanadequateand
satisfactoryinternalcontrolsystemintheundertaking.
Theinternalcontrolsystemshouldbereliable,effective,
andshouldprovidetimely,authorizedandrequireddata
fromthesystem.Thevariousinternalcontrolsrequiredto
beenforcedunderanEDPenvironmentmaybebroadly
classifiedintotwocategories.

11. EDP environment
They are,
1) General EDP controls
2) EDP application controls

12. GENERAL EDP CONTROLS.
ThepurposeofgeneralEDPcontrolistoestablisha
frameworkofoverallcontroloverEDPactivities.Some
oftheimportantgeneralEDPcontrolsare,
1)Divisionofresponsibilityorduties.
2)Controloverdevelopmentandmaintenanceofsoftware
3)Controloveroperators.
4)Controloverdataaccessandprogramaccess.
5)Controlovereditingofdata.
6)Storagecontrol.
7)Hardwarecontrol.

13. EDP APPLICATION CONTROL
ForthesmoothworkingofEDPsystem,besides
thegeneralEDPcontrols,thereshouldcertain
specialEDPapplicationcontrols.TheimportantEDP
applicationcontrolsare
1)Controloverinput
2)Controloverprocessing
3)Outputcontrol