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Chapter 7

CHAPTER 7 THE EFFECT OF INFORMATION TECHNOLOGY ON THE AUDIT FUNCTION. Chapter 7. TYPES OF CONTROLS IN AN IT ENVIRONMENT. General Controls: Relate to the overall information processing environment. Application Controls: Apply to the processing of specific computer applications.

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Chapter 7

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  1. CHAPTER 7 THE EFFECT OF INFORMATION TECHNOLOGY ON THE AUDIT FUNCTION Chapter 7

  2. TYPES OF CONTROLS IN AN IT ENVIRONMENT • General Controls: Relate to the overall information processing environment. • Application Controls: Apply to the processing of specific computer applications.

  3. GENERAL CONTROLS • Organizational controls (see Figures 7-3 and 7-4, and Table 7-2) • Data center and network operations controls • Hardware and systems software acquisition and maintenance controls (see Table 7-3)

  4. GENERAL CONTROLS • Access security controls • Applications system acquisition, development and maintenance controls

  5. APPLICATION CONTROLS • Data capture controls (see Table 7-5) • Data validation controls (see Table 7-6) • Processing controls (see Table 7-7)

  6. APPLICATION CONTROLS • Output controls • Error controls (see Figure 7-5)

  7. THE EFFECT OF IT ON INTERNAL CONTROL COMPONENTS • The presence of computer processing for significant accounting applications affects how an entity implements its internal controls. • In particular, the control environment factors and control activities are affected by IT.

  8. THE AUDIT PROCESS IN AN IT ENVIRONMENT • The auditor's knowledge of the entity's IT processing must include the following factors: • The extent to which IT is used in each significant accounting application. • The complexity of the entity's IT operations. • The organizational structure of the IT processing activities. • The availability of data for evidential matter.

  9. COMPUTER-ASSISTED AUDIT TECHNIQUES (CAATs) • Generalized audit software (see Table 7-9) • Custom audit software

  10. COMPUTER-ASSISTED AUDIT TECHNIQUES (CAATs) • Test data (see Figure 7-6) • Parallel simulation (see Figure 7-7) • Integrated test facility

  11. USE OF PERSONAL COMPUTERS AS AN AUDIT TOOL • Trial balance and lead schedule preparation. • Audit documentation. • Audit program preparation. • Analytical procedures.

  12. USE OF PERSONAL COMPUTERS AS AN AUDIT TOOL • Documentation of internal control. • Data retrieval and analysis. • Performance of statistical sampling applications.

  13. AUDITING ACCOUNTING APPLICATIONS PROCESSED BY SERVICE ORGANIZATIONS • The auditor should consider the following factors when a client who uses a service organization to process certain transactions: • The inherent risk and significance of the audit assertion affected by the controls. • The extent of the interaction between the client's controls and the service organization's controls. • Controls applied by the client to transactions processed by the service organization.

  14. AUDITING ACCOUNTING APPLICATIONS PROCESSED BY SERVICE ORGANIZATIONS (continued) • The auditor's prior experience with the service organization. • The extent of auditable data within the client's internal control.

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