'Computerized Auditing Essay\r'

'With the mental home of figurers, conventional drawing ashess and methods development papers, pens and abac frugal consumptions have underg wholeness drastic changes, t herefore exerting a slap-up push on internal defy and take stock trails in pursuit canvas procedures. Also, the launching of calculator has brought an immense increase in the handiness of electronic re microbes. My number is entitled auditing in a Computerized info body (CIS). One purpose why this topic is included in auditing is due to the r adenosine monophosphateant changes that argon happening in our society.\r\nWe could say that every day, everything virtually us is going by the” influence of organic evolution”. Example, the government structure, educational structure, social structure, technological structure, sparing structure and others atomic number 18 going into extensive and far-flung changes. Work right a counsellingadays involve the enjoyment of info processor, hen ce, the take up for electronic estimatorized development placement in auditing erupted. Around the instauration, computing machine plays an heavy role in the development of bingle’s country. That is why, here in the Philippines, we ar essay to muddle through by with the drastic and understructure changes in order to be globally competitive.\r\nIn fact, technology experts stated that when it comes to new enhancement and receipts of technology, the Philippines is non far behind, but rather one of the fastest country to acclimatize and adopt in this unbeliev suitable wave of changes. With the rapid progress in technology in recent years, calculating machine selective learning clays have become feasible and practicable, perhaps essential, for exercise even in small scale chore operations. Almost all entities this instant wont computers to some extent in their grudgeing agreements.\r\nThe widesp usher outvass use of computers has offered new opportunities for professional accountants and had also created some dispute and exigent problems to meeters. Additionally, in auditing, the need for computer is now more important and monumental because of the increasing and ontogeny demand of auditing. Without computer, then auditing would not be able to deal with this growing demand. Ever imagine, runing an audit without the usage of computer, isn’t it that it will be very hard for the meeter because we all know, we human beings are immersed and natural with errors. Incorporating CIS in auditing is tough.\r\nThis is because; there are technical and methodological enumerates that an auditor doesn’t have any conception with, for instance, the computer software program, such as operating program, utility program, and so on Auditors do not have any predilection of these things, that’s why auditor tries to broaden their intimacy in order to be competitive. The effect of that leads to the comfortable of auditi ng. Time and meter again, auditing will continue to evolve. Having utter all that, this topic contains a lot of incompatible things which hatfulnot be found in normal manual(a) of arms auditing. The overall objective and scope of an audit does not change in a CIS environment.\r\nHowever, the use of a computer changes the bear upon, storage and communication of pecuniary in organic law and whitethorn affect the news report and internal discover systems employed by the entity. Accordingly, a CIS environment whitethorn affect: a. ) the procedures followed by the auditors in obtaining a adequate catch of the accounting and internal control systems; b. ) the musing of inherent risk and control risk through which the auditors arrive at the risk assessment; and c. ) the auditors’ mark and performance of tests of control and meaty procedures enchant to diddle the audit objective.\r\nAnyways, regardless of the extent of computerization or the methods of data process being used, the establishment and carrying out of appropriate internal control systems rests with the management and those aerated with governance. The auditor’s right is to obtain an understanding of the entity’s internal control system to be able to assess control risk and come across the nature, timing and extent of tests to be performed. Before tackling the important details of my topic, let us first qualify what is meant by Auditing and Computerized Information System (CIS). So, what is auditing?\r\nPSA cc defines auditing by stating the objective of a financial disceptation audit, that is, to alter the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. A more comprehensive definition of auditing is given by the American Accounting familiarity: â€Å"auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to as certain(a) the degree of correspondence between these assertions and formal criteria and communicating the results to interested users. On the other hand, computerized cultivation system pertains to the usage of computer to develop and collate the information derived in an audit for the need of the auditor and third parties colligate.\r\nAnother definition of Computerized Information System (CIS) includes, is often a track within the computer science field studying computers and algorithmic processes, including their principles and doctrine, their software & hardware designs, their applications, and their impact on the world(a) public. (http://www. quora. om/Information-Systems) I would just like to give a brief history of Auditing in a CIS Environment. It began as Electronic Data Process (electronic data touch) Auditing and developed by and large as a result of the rise in technology in accounting systems, the need for IT control, and the impact of computers on the ability to perform attestation services. The oddment fewer years have been an exciting cadence in the world of CIS auditing as a result of the accounting scandals and increased regulation. CIS auditing has had a relatively neat yet rich history when compared to auditing as a whole and remains an ever changing field.\r\nThe introduction of computer technology into accounting systems changed the way data was stored, retrieved and controlled. It is believed that the first use of a computerized accounting system was at General Electric in 1954. During the time period of 1954 to the mid-1960s, the auditing profession was still auditing around the computer. At this time only mainframe computers were used and few people had the skills and abilities to program computers. This began to change in the mid-1960s with the introduction of new, smaller and less expensive machines.\r\nThis increased the use of computers in businesses and with it came the need for auditors to become familiar with electronic data process concepts in business. Along with the increase in computer use, came the rise of different types of accounting systems. The industry shortly realized that they inevitable to develop their own software and the first of the generalized audit software (GAS) was developed. In 1968, the American Institute of Certified Public Accountants (AICPA) had the fully grown Eight (now the Big Four) accounting firms participate in the development of EDP auditing.\r\nThe result of this was the release of Auditing & EDP. The book included how to document EDP audits and examples of how to process internal control reviews. Around this time EDP auditors formed the Electronic Data Processing Auditors Association (EDPAA). The goal of the association was to produce guidelines, procedures and standards for EDP audits. In 1977, the first edition of get a line Objectives was published. This publication is now known as Control Object ives for Information and connect Technology (CobiT). CobiT is the set of generally accepted IT control objectives for IT auditors.\r\nIn 1994, EDPAA changed its name to Information Systems Audit and Control Association (ISACA). The period from the late 1960s through today has seen rapid changes in technology from the personal computer and networking to the internet and with these changes came some major events that change IT auditing forever. The formation and rise in popularity of the Internet and E-commerce have had significant influences on the growth of IT audit. The Internet influences the lives of most of the world and is a place of increased business, entertainment and crime.\r\nIT auditing helps organizations and individuals on the Internet find security while lot commerce and communications to flourish. (www. trustsoft. com/pp_ha_1. php) In terms of needed skills and competence of the auditor; he/she should have fitted knowledge of the CIS to plan, direct, get by and r eview the work performed. The auditor should consider whether specialized CIS skills are needed in an audit. These may be needed to a. ) obtain capable understanding of the accounting and internal control systems of the CIS environment, b. go over the effect of CIS environment on the assessment of related risks, c. ) design and perform appropriate tests of control and substantive procedures.\r\nIn planning the portions of the audit which may be affected due to lymph gland’s CIS environment, the auditor should acquire an understanding of the implication and complexity of the CIS activities and the availability of data for use in the audit. Such matter that needed understanding are the following; a. ) the moment and intricacy of computer processing in from each one significant accounting application, b. the organizational structure of the client and the extent of parsimony or distribution of computer processing throughout the entity, c. ) the availability of data (e. g. s ource document, computer files). Computerized information systems have essential and spanking characteristics that distinguish them from manual processing system.\r\nThese are the following: a. ) lack of visible(a) transaction trails, b. ) consistency of performance, c. ) concentration of duties, d. ) ease of nettle to data and computer programs, e. ) pic of data and program storage media, f. Systems generated transactions and g. ) potence for increased management supervision. As regards to lack of visible transaction trails, in manual system, it is normally accomplishable to follow a transaction through the system; by examining source documents, entity’s records, and financial reports. In a CIS environment, data can be entered directly and unswervingly into the computer system devoid of reinforcement documents. Furthermore, records and files may not be printed and cannot be read without using the computer.\r\nThe absence of these visible documents supporting the proces sing of transactions makes the examination of evidence more difficult. In relation to the consistency of performance, CIS performs functions exactly as programmed. If the computer is programmed to perform a specific data processing task, it will never get tired of perform the assigned task in exactly the corresponding manner. Because of this capability of the computer to process transactions uniformly, clerical errors that are normally associated with manual processing are eliminated.\r\nOn the other hand, an incorrect program could be very devastating because it will result to consistently erroneous data processing. Third, concentration of duties, in here fitting segregation of duties is an essential characteristic of a sound internal control system. However, because of the ability of the computer to process data efficiently, there are functions that are normally segregated in manual processing that are combined in a CIS environment. As a particular example, in manual processing the function of recording cash disbursements is incompatible with the responsibility for reconciling cash disbursement.\r\nSince one of these functions serves as a check upon the other, assigning both functions to one employee would enable and permit that employee to commit and conceal errors and irregularities. A mighty programmed computer, on the other hand, has no tendency or motivation to commit irregularities or conceal its errors. so what appears to be an incompatible combination of functions may be combined in a CIS environment without enfeebling and dwindling the internal control provided suitable and appropriate compensating controls are put in place.\r\nFourth, ease of access to data and computer programs, in a CIS environment, data and computer programs may be accessed and altered by un countenance persons leaving no visible and detectible evidence. It is important, therefore, that square-toed and appropriate controls are incorporated in the system to limit the acces s to data files and programs only to authorized personnel. Fifth, vulnerability of data and program storage media, in a manual system the records are indite in ink and substantial paper. The only way to lose the information is to lose or eradicate the physical records.\r\nThe situation is completely different in a CIS environment. The information on the computer can be easily changed, leaving no analyze of the original content. This change could happen inadvertently and colossal amount of information can be speedily lost. Another, systems generated transactions; certain transactions may be initiated by the CIS itself without the need for an input document. For example, interest may be calculated and charged automatically to customers’ account balances on the basis of pre-authorized terms contained in a computer program.\r\nLastly, potential for augmented management supervision, CIS can offer management a variety of uninflected tools that may be used to review and superv ise the operation of the entity. The availability of these tools may enhance the integral internal control structure. There are certain advantages and disadvantages in using computer in the conduct of audit. Take note that the characteristics of computer information system already tackled above pertains to some advantages and disadvantages of CIS.\r\nAdvantages of it includes, it avoids computational errors ordinarily done by human; eases up and tranquilize the work of auditor particularly when it comes to timeliness; rapid and efficient in processing of information; times and creation of accounting documents like invoices, cheques and statement of account are automatic; more timely information can be produced; With the larger reductions in the greet of hardware and software and availability of user-friendly accounting software package, it is relatively cheaper like maintaining a manual accounting system; no more manual processing of the data hence all data are automatically been posted to the various ledgers/accounts and others . On the other hand, the disadvantages of CIS are the following: it removes part of the audit trail; subject to manipulation especially to unlicenced personnel; the need for back-up files, could result into more cost, especially if computer is susceptible to power interruption and from pathogenic software; danger of computer fraud if proper level of control and security whether internal and foreign are not properly been instituted and others.\r\n'