Introduction to caat

Introduction to caat

1. INTRODUCTION TO CAAT COMPUTER ASSISTED AUDITING TECHNIQUES S.Y.B.A.F. - I.T. UNIT - II

2. INTRODUCTION TO CAAT

3. INTRODUCTION TO CAAT Auditing means the systematic examination & verification of accounts books, transactions etc. Till computing age auditing was done manually. Auditing task became simple by the introduction to the computing system. This is an approach to audit the accounts using computer software. Business audit analysis became faster & accurate after computer systems.

4. AUDIT ANALYSIS Trend analysis is the analysis of changes in an account balance over time. Ratio analysis is the comparison of relationships between financial statement accounts, the comparison of an account with non-financial data, or the comparison of relationships between firms in an industry. Reasonableness testing is the analysis of account balances or changes in account balances within an accounting period in terms of their “reasonableness” in light of expected relationships between accounts. Statistical analysis is the analysis of data using statistical methods.

5. AUDIT METHODOLOGIES IN COMPUTER ENVIRONMENT Audit around computer (black box approach) Audit through computer (white box approach)

6. Audit around computer ( black box approach ) Early days approach Computer functions replicated manual processes in a straightforward fashion. And we let computer to perform trail of work tasks. Ignoring what was happening inside the computer. A reliance is completely on the EDP(Electronic Data Processing) system.

7. Audit around computer SYSTEM VERYFICATION To ensure correct & complete data being made available for processing. To ensure checks & controls on output for accuracy & completeness. To provide adequate data security. To prevent unauthorized alterations. To provide for error detection & correction.

8. Audit around computer SUMMERY In this approach computers are considered as another type of bookkeeping machine. Here the auditor simply audits the input given & the output delivered by the system without checking the authenticity of the processing performed within. The assumption is that the processing is accurate & as desired.

9. Audit around computer why people follow this approach most often? Processing done by the computer is too simple e.g. casting, sorting etc. Auditor is already aware of the software reliability. Auditor has no mean to gain understanding of the computer system.

10. Audit through computer (white box approach ) Auditor examines the internal working of the computer system. The auditor can verify the program herself & technically satisfy herself that systems, checks, controls, error detection & data security procedures are satisfactory. Auditor uses test-checks to test the system in operation .

11. Audit through computer AUDITOR’S MAIN CONCERN To check system controls. Examination & testing of computer implemented controls. To improve quality of audit. To reduce time spent on detailed verification of transactions.

12. Audit through computer why people follow this approach? The auditor can verify the programs herself & technically satisfy herself that systems, checks, controls, error detection and data security procedures are satisfactory. The auditor can use test checks to test the system in operation & ask for special printouts by making use of programming facilities available within the software.

13. COMPUTER-ASSISTED AUDIT TECHNIQUES CATEGORIES Auditors have recognized that the power & speed of computers can greatly assist them in their work. CAAT can be used to help audit in more effective, efficient & timely manner. There are two general categories: CAATs for retrieving data; CAATs for verifying system controls.

14. COMPUTER-ASSISTED AUDIT TECHNIQUES ADVANTAGES OVER TRADITIONAL METHODS Auditors in a traditional method audit with limited sample of population & generalized their conclusion based on the limited sample population which may not be true every time . However, with CAAT techniques every transaction can be audited & variations could be detected. Also CAAT helps the auditors in testing specific risks .

15. COMPUTER-ASSISTED AUDIT TECHNIQUES ADVANTAGES OVER TRADITIONAL METHODS - EXAMPLE TRADITIONAL METHOD: An insurance company may want to ensure that it doesn't pay any claims after a policy is terminated. Using traditional audit techniques this risk would be very difficult to test. The auditor would randomly select a statistically valid sample of claims . They would then check to see if any of those claims were processed after a policy was terminated. Since the insurance company might process millions of claims the odds that any of those randomly selected claims occurred after the policy was terminated is extremely unlikely.

16. COMPUTER-ASSISTED AUDIT TECHNIQUES ADVANTAGES OVER TRADITIONAL METHODS – EXAMPLE Continued… CAAT METHOD: Using CAAT the auditor can select claim that had a date of service after the policy termination date. The auditor then can determine if any claims were inappropriately paid. If they were, the auditor can then figure out why the controls to prevent this failed. CAATs are used to simplify or automate the data analysis process.

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