The Impact of
Information
Technology on the
Audit Process
Chapter 12
©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder
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Learning Objective 1
Describe how IT improves
internal control.
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How Information Technologies
Enhance Internal Control
Computer controls
replace manual controls.
Higher-quality
information is available.
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Learning Objective 2
Identify risks that arise from using
an IT-based accounting system.
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Assessing Risks of
Information Technologies
Reliance on the capabilities of hardware
and software
Visibility of audit trail
Reduced human involvement
Systematic versus random errors
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Assessing Risks of
Information Technologies
Unauthorized access
Loss of data
Reduced segregation of duties
Lack of traditional authorization
Need for IT experience
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Learning Objective 3
Explain how general controls
and application controls
reduce IT risks.
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Internal Controls Specific to
Information Technology
General controls
Application controls
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Relationship Between General
and Administrative Controls
Risk of unauthorized change
to application software
Risk of system crash
Cash receipts
application
controls
Sales
applications
controls
Payroll
application
controls
Other cycle
application
controls
Risk of unauthorized
master file update
GENERAL CONTROLS
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Risk of unauthorized
processing
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General Controls
Administration of the IT function
Segregation of IT duties
Systems development
Physical and online security
Backup and contingency planning
Hardware controls
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Administration of the IT Function
The perceived importance of IT within an
organization is often dictated by the attitude of
the board of directors and senior management.
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Segregation of IT Duties
Chief Information Officer or IT Manager
Security Administrator
Systems
Development
Operations
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Data
Control
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Systems Development
Typical test
strategies
Pilot testing
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Parallel testing
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Physical and Online Security
Physical Controls:
 Keypad entrances
 Badge-entry systems
 Security cameras
 Security personnel
Online Controls:
 User ID control
 Password control
 Separate add-on
security software
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Backup and Contingency Planning
One key to a backup
and contingency plan
is to make sure that
all critical copies of
software and data files
are backed up and
stored off the premises.
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Hardware Controls
These controls are built into computer
equipment by the manufacturer to
detect and report equipment failures.
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Application Controls
Input controls
Processing
controls
Output controls
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Input Controls
These controls are designed by an
organization to ensure that the
information being processed is
authorized, accurate, and complete.
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Batch Input Controls
Financial total
Hash total
Record count
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Processing Controls
Validation test
Sequence test
Arithmetic accuracy test
Data reasonableness test
Completeness test
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Output Controls
These controls focus on detecting errors
after processing is completed rather
than on preventing errors.
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Learning Objective 4
Describe how general controls
affect the auditor’s testing
of application controls.
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Impact of Information Technology
on the Audit Process
Effects of general controls on control risk
Effects of IT controls on control
risk and substantive tests
Auditing in less complex IT environments
Auditing in more complex IT environments
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Learning Objective 5
Use test data, parallel simulation,
and embedded audit module
approaches when auditing
through the computer.
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Test Data Approach
1
Test data should include all relevant
conditions that the auditor wants tested.
2
Application programs tested by the
auditor’s test data must be the same as
those the client used throughout the year.
3
Test data must be eliminated from the
client’s records.
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Test Data Approach
Input test
Transactions to test
Key control
Procedures
Master files
Contaminated
master files
Application Programs
(Assume Batch System)
Transaction files
(contaminated?)
Control test
results
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Test Data Approach
Control test
results
Auditor makes
comparisons
Auditor-predicted results
of key control procedures
based on an understanding
of internal control
Differences between
actual outcome and
predicted result
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Parallel Simulation
The auditor uses auditor-controlled software
to perform parallel operations to the client’s
software by using the same data files.
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Parallel Simulation
Production
transactions
Master
file
Auditor-prepared
program
Client application
system programs
Auditor
results
Client
results
Auditor makes comparisons between
client’s application system output and
the auditor-prepared program output
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Exception report
noting differences
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Embedded Audit Module
Approach
Auditor inserts an audit module in the
client’s application system to capture
transactions with characteristics that
are of specific interest to the auditor.
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Learning Objective 6
Identify issues for e-commerce
systems and other specialized
IT environments.
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Issues for Different IT
Environments
Issues for microcomputer environments
Issues for network environments
Issues for database management systems
Issues for e-commerce systems
Issues when clients outsource IT
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End of Chapter 12
©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder
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