May 20, 2015

MF0013 [Internal Audit and Control] Set1 Q5

Q.5 Write the essential requirement of Computer Assisted Auditing Techniques (CAAT)? 


In auditing with the computer, auditors employ CAATs with other auditing techniques to perform their work. As its name suggests, CAAT is a tool to assist auditors in performing their work faster, better, and at lower cost. As CAATs become more common, this technical skill is as important to auditing profession as auditing knowledge, experience and professional judgement.

The implementation of computerization greatly improved accounting information processing speed and accuracy, can provide users with timely and accurate accounting information, the accounting industry in the history of an unprecedented leap forward. However, in this leap also audit work great, and summarized in the following aspects:

Computer Assisted Auditing Techniques (CAAT)
Your company has been selected for audit by the Massachusetts Department of Revenue. Our goal is to determine the proper tax due and propose any adjustments to the tax reported, with minimal time and expense to your company and the Department of Revenue. Computer Assisted Audit Techniques (CAATS) is an important tool in attaining that goal. The Department of Revenue has invested in software that allows us to accept electronic records from virtually any bookkeeping or financial accounting system. 

If you submit your records electronically we can quickly select a statistically valid sample of transactions on which to base our audit. We do this work from our office, saving your staff time and inconvenience. Integrating CAATS into the audit process is part of our commitment to streamline the audit process. Our goal is to complete an efficient, understandable and accurate audit. We will provide an audit trail consistent with Generally Accepted Accounting Principles. Our CAATS program is based on a tested and sound database application and informed judgment.

What is a Computer Assisted Audit?
Audit functions formerly performed manually are now performed using standard financial accounting software, modified as necessary for a particular system. Generally, much of the same information is requested and analyzed as in a traditional audit. Once verified using computer techniques, data is retained so it can be used in other areas of the audit including error identification and segregation of transactions within accounts. Customized reports are generated by computer and a standard audit trail is maintained.

What advantages does the use of CAATS have over a traditional audit?

Most importantly, it saves time for you and DOR with no loss of quality or accuracy. Secondly, by analyzing data and generating specific reports using a standard program, data analysis is focused and allows for any future adjustment to be made with minimal effort. Thirdly, preliminary data can often be analyzed early in the audit process and a more efficient audit plan can be devised earlier.

An audit trail of changes in 

Since the implementation of computerization of accounting, so that the audit trail has greatly changed, the traditional manual accounting system audit trail in the computerized system will be interrupted or even disappear. In the manual system, from the original documents to the accounting vouchers, from posting to the financial statements have been prepared, documented every step, there are handling signature, audit trail is very clear. Auditor trial lines, as needed Shun can search, reverse search, or random. However, in computerized accounting system, the traditional is not the books, and most of the transcripts disappeared, replaced by the existence of accounting information disk and tape, which is based on the information on magnetic media, machine-readable form, the naked eye does not recognize. 

In addition, from the raw data into the machine, the output of the financial statements, which focused on the middle of all the accounting treatment of automatically by a computer program instructions according to preservation, the traditional audit trail here interrupted, and disappeared. The traditional guard of the computerized accounting entity is no longer fully applicable. In order to effectively audit the computerization of the accounting entity, in the computerized accounting system design and development of audit requirements must pay attention to the new audit trail left behind. For example, to leave a detailed record of each business, rather than leaving only the updated current balance. Some systems in the temporary files, after a certain period of time should be deleted. If the audit need to check these documents should be copied in order to search.
Second, changes in the accounting system of internal control
Modern international audit are based on system-based, that is the auditor of the accounting system to review and evaluate internal controls, as a development of the scope of the audit program and decide on the basis of spot checks. Because of the computerized accounting system implementation, manual control of the existing accounting system can not meet the new features of data processing can not effectively reduce the computerized accounting system-specific risk. For example, in computerized accounting systems, accounting information processing and storage are highly concentrated in the computer, make some of the manual accounting system, separation of duties, each send control system failure. 

In order to secure the system and the system processing and storage of accounting information accurate and complete, we must consider the characteristics of computerized systems, for its inherent risks, the establishment of new internal controls. In addition to these internal controls related to electronic data processing system for the implementation of process control and artificial, the internal control procedures of computerized accounting information system is an important feature. How to identify, review and evaluation of these new content control, especially the process of internal control is a computerized accounting for a further new audits. 

American Institute of Certified Accountants Association, No. 3 of the Introduction to Auditing Standards states: "If a customer in its accounting system, the use of electronic data processing, whether it is a simple band is complex, the auditor must fully understand the entire system, allowing to identify and evaluation system of basic accounting controls features. including the more complex electronic data processing applications, cases, the auditors in the implementation of the necessary audit program that will be on the application of specialized expertise in electronic data processing. " Computerized accounting conditions, due to changes in internal controls, and auditors must study computerized system of internal control, master of its assessment methods. Of process control, the auditor should audit the use of computer-assisted audit techniques. For Computerized Accounting Information System of internal control weaknesses, auditors must be able to assess its impact to the Pishendanwei suggestions for improvement.
Third, changes in the contents of the audit
Computerization of accounting under the conditions of the trial so that the monitoring functions, though not changed, but the audit of the substance was changed. In the computerized accounting information systems, accounting matters automatically by a computer according to the procedures for processing, if the system an application error or unlawfully altered, then the computer will only process given the same wrong way to deal with all of the relevant accounting matters, the system can be without our noticing them embedded in illegal and corrupt process, criminals can use these procedures for a large number of corrupt misappropriation of property. Does the system deal with compliance, legal, safe and reliable, with the computer system processing and control functions are directly related. The characteristics of computerized accounting information system and its inherent risks, the decision to increase the content of the audit of the computer system processing and control functions under review. Under the condition of computerized accounting, the audit staff to spend more time and effort to understand and review the functions of a computer system to confirm the legitimacy of its processing, accuracy and completeness to ensure the system safe and reliable.
When a system has been completed and put into use, and then to improve it, than in the system design, development stage is much more difficult, costs much more expensive. Therefore, in addition to right to vote after use computerized accounting information systems post-audit services, but also to promote the system's design, development stage, the audit should be carried out in advance, and things involved in the audit. They are in the system design and development at all stages of review and assessment should pay attention to the following questions: First, the system is functioning properly, complete, users can meet the accounting and management requirements; second is the system of data flow approach is in line with the accounting system, regulations, decrees and financial discipline requirements; third is whether the system is set up properly process control, to prevent or timely detection of unintentional errors or intentional fraud; 4 whether to keep the system a full audit trail, can successfully develop for the future the audit to provide the necessary conditions; 5 is the system's security measures and management system is sound, whether the system safe and reliable operation of the future system of development control. Audit staff also participated in the system debugging, testing and acceptance, as timely as possible to find that the system matters, and suggest improvements. 

Fourth, changes in audit techniques
In the manual processing conditions, the audit can be carried out according to specific circumstances shun investigation, reverse search, or random. Review commonly used to review, check, compare, investigate and prove such. All the reviews are done by hand. Computerized accounting conditions, determine the characteristics of the accounting audit and technical change. Although a variety of manual review of technology is still very important, but machine-assisted auditing techniques is essential to the audit.
Computerized information processing and information storage of the electromagnetic, if not all of the accounts table printout paper documents, magnetic media on the accounting information is the naked eye can not recognize, the audit staff can only use computers to review it. Even though, the entire account must be in hard copy form, using the computer more quickly than the hand can be more effective to complete review, verification, analysis, comparison of the review. For example, the computer can help auditors to review the accounts file, find the accounting records to meet the specified conditions; can be a large number of accounting matters of statistical sampling in order to extract samples of the auditors of the lack of further review; also be recorded in accordance with accounting information system to calculate various financial ratios, rates of change and conducting a variety of analysis and comparison and so on.

Computerization of accounting under the conditions of both the computer system processing and control functions to review, but also using computer-assisted audit techniques. Review of the computer system functions, you must run the computer, let the computer perform various operations and processing, that is, the use of computers to carry out the audit. This review is not to leave the computer only by manual methods to complete.
Another computer-assisted audit techniques, in computerized accounting information system design and development process, can be audited in advance of the embedded computer systems audit procedures. These programs can perform the audit oversight, to establish an audit trail documents, records the transactions meet the specified conditions and the operation processing of relevant information for future audit staff actively tracing. These programs can also perform some special audit function.
Fifth, higher demand for auditors
Computerization of accounting under the condition of content control as an audit trail, content, and auditing techniques change, the decision on the audit staff requirements high. The auditors do not understand computers because of changes in the audit trail can not be active audit; do not know the characteristics of computerized accounting systems and risk can not be identified and the trial of its internal controls; do not know how so that the computer can not review or use of computer the computer audit. Therefore, it requested the auditors not only have the accounting, auditing, and practical knowledge, but also access to computers and computerized accounting knowledge and skills.
Seen from the above, the accounting computerization to the audit made a number of new, new requirements. The traditional manual audit can not meet the requirements of computerization. , And to carry out computer audit, the audit department and audit staff of new subjects and new tasks.

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