1 Audit Proposal 2 Kudler Fine Food has expanded business and updated their computer systems to meet demands. As IT information is adopted within the organization, automation control processes have become more virtualized. To ensure that Kudler’s computerized systems function properly an audit must be performed on an annual basis and is necessary to make sure the data is reliable, confidential, safe, and available when needed. This brief will distinguish between the types of audits that might be used for each process, audit recommendations for each process, an explanation on how the audit will be conducted, and events that might prevent reliance on auditing through the computer. Types of Audit When looking at the variety of audits that are possible, it is critical to identify the purpose of each system of accounting function for Kudler Fine Foods and the applicable audit based from that function. This allows for the relevancy and transparency of the audits along with the operating procedures of the company to be equal. There is a variety of IT audits that can be conducted for each department. We will be focusing on three separate audits before recognizing which one will be used for each department. These audits are the SAS 70, SAS 94, and attestation standards audit. http://www.papercamp.com/essay/23574/Audit-Proposal https://www.coursehero.com/file/8661096/Week-5-Audit-Proposal/ Information technology and financial audits primary objectives are to ensure data integrity, safety, secure and operational effectiveness for Kudler’s business processes. Internal audit will provide an opinion on the accuracy and fairness of the financial statements. “This 3 fairness evaluation is conducted in the context of generally accepted accounting principles (GAAP) and requires application of generalized auditing standards” (Bargranoff, 2008). External audits will assess computer-based accounting systems. The purpose of the audit is to determine how the computerized system impacts Kudler’s financial statements. Substantive test will be done to ensure proficiency; and it will begin with a preliminary test. A risk assessment will be another objective of the audit. “Risks of material misstatement can arise from a variety of sources, including external factors, such as conditions in the company's industry and environment, and company-specific factors, such as the nature of the company, its activities, and internal control over financial reporting” (Audited No.12, 2012). The risk must be evaluated because the system controls strengths and weakness affects the scope of the audit. “The risk-base audit approach provides auditors with a good understanding of the errors and irregularities that can occur in a company’s AIS environment and the related risks and exposures” (Bagranoff, 2008). BELINDA – Recommend the audit most appropriate for each process. Financial audits reveal the company's financial state by investigating accounting records, reviewing the company’s internal controls policies, cash assets and any additional financial areas. Publicly-traded companies as well as privately owned small businesses are subjected to external financial audits frequently by the IRS or another government authority. If Kudler is educated on how to internally conduct a financial audit on your own financial books, this will help to prepare for a external audit, keep the accounting system organized while deterring theft and fraud internally. 4 The following are the steps on how the internal and external audits will be conducted. Treating an internal audit similar to an external audit will eliminate potential errors, doubts and prepare Kudler to meeting the requirements of the external audit. Step one, is to collect the financial documents, such as invoices, sales receipts, and bank statements, then forward to Accounting for processing. Step two, review Kudler’s record-keeping guidelines and examine if records are stored correctly. As with any small business, Kudler should retain an electronic duplicate copy of all cancelled checks, cash register tapes, and invoices, also ensure that archived documents can be retrieved quickly. Step three, identify and review components of Kudler's accounting system, including debits and credits, financial statements, general ledger and journal entries. Systematically work through the accounting system to ensure that all necessary accounts are present, that T-accounts are posted to the general ledger in a timely manner and that the system has the ability to correct human errors, such as arithmetic mistakes (Saleemi, 2007). Step four, review the company’s internal control policies to determine the level of protection each provides in case of fraud and theft. Accounting internal controls should include things such as separation of duties, safekeeping of bank deposits and password protected software that systematically tracks accessibility into the system. Step five, auditors will compare the internal records against the external records which will validate the external records that are stored against some selected transactional internal records. Finally, step six will be to analyze the company’s internal tax records and official tax returns. Ensure that Kudler’s tax records are retained for seven years and browse through the company's IRS tax receipts and balance against Kudler’s tax liabilities and taxes paid and that they are logged in the accounting records. Auditing through the computer is a technique used to determine the reliability of operations as well as to test the operating effectiveness of computer controls, for example, access 5 control. Forces that might prevent reliance on auditing through the computer are securities and internal controls. Security is important and may impact the reliance on auditing. If there is a lack of security, the reliance on auditing through computers may decrease. In the case of internal controls, auditors will need to perform substantive testing when they are weak or perhaps when there is no control. In other words, perform audits of company’s transactions and account balances. Reference Auditing Standard No. 12 Identifying and Assessing Risks of Material Misstatement. Public Company Accounting Oversight Board. Retrieved on September 15, 2012 http://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_12.aspx Bagranoff, N. (2008). Information Technology Auditing. John Wiley & Sons, Inc. Kudler Fine Foods, (2011). Apollo Group, Inc. retrieved on September 14, 2012 from https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Kudler2/intranet/accountingsystem-overview.asp 6 Bagranoff, Nancy A. Core Concepts of Accounting Information Systems. John Wiley & Sons, Inc. (2008). Auditing Standard No. 12 Identifying and Assessing Risks of Material Misstatement. Public Company Accounting Oversight Board. Retrieved on September 15, 2012 http://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_12.aspx Bagranoff, N. (2008). Information Technology Auditing. John Wiley & Sons, Inc. Bagranoff, Nancy A. Core Concepts of Accounting Information Systems. John Wiley & Sons, Inc. (2008). Kudler Fine Foods, (2011). Apollo Group, Inc. retrieved on September 14, 2012 from https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Kudler2/intranet/accounti ng-system-overview.asp Saleemi, N.A. (2007). Storekeeping and stock control simplified. Nairobi: Saleemi Publications Ltd.