7 Key Audit standards and IS controls SA Planning an Audit of Financial Statements SA 315- Identifying and assessing the risk of material misstatement through understanding the entity and its environment SA Audit considerations relating to an entity using a service organization SA
8 SA 300 The effect of information technology on the audit procedures, including the availability of data and the expected use of computer assisted audit techniques. Evidence of managements commitment to the design, implementation and maintenance of sound internal control, including evidence of appropriate documentation of such internal control.
9 SA 315 : Para A50 Controls in IT systems consist of a combination of automated controls (for example, controls embedded in computer programs) and manual controls. Further, manual controls may be independent of IT, may use information produced by IT, or may be limited to monitoring the effective functioning of IT and of automated controls, and to handling exceptions. When IT is used to initiate, record, process or report transactions, or other financial data for inclusion in financial statements, the systems and programs may include controls related to the corresponding assertions for material accounts or may be critical to the effective functioning of manual controls that depend on IT.
10 SA 315 : Para 52 Information Technology also poses specific risks to an entitys internal control, including, for example : Reliance on systems or programs that are inaccurately processing data, processing inaccurate data, or both. Unauthorized access to data that may result in destruction of data or improper changes to data, including the recording of unauthorized or nonexistent Transactions, or inaccurate recording of transactions. Particular risks may arise where multiple users access a common database. The possibility of IT personnel gaining access privileges beyond those necessary to perform their assigned duties thereby breaking down segregation of duties. Unauthorized changes to data in master files. Unauthorized changes to systems or programs. Failure to make necessary changes to systems or programs. Inappropriate manual intervention. Potential loss of data or inability to access data as required.
11 SA 402 Para 3: Services provided by a service organization are relevant to the audit of a user entitys financial statements when those services, and the controls over them, are part of the user entitys information system, including related business processes, relevant to financial reporting Para 5 : Information available on general controls and computer systems controls relevant to the client's applications
12 SA COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT Duties of Auditor To find significant deficiencies in the IC system. Impact on F/S after performing Risk Assessment Procedures (SA 315). Obtaining Written Representations from Management (SA 580) and communication.
13 SA IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT Auditors Role Obtain Understanding of the Internal Control System. Perform Risk Assessment Procedures. Categorization of Risks.
14 SA THE AUDITORS RESPONSES TO ASSESSED RISKS Auditors Role Classifying assessed risks as inherent or controllable Design Responses to assessed risks Communicate to Management (SA 265)
15 IS Controls and CARO Para 34 of SA 400
16 Clause 49 – CEO-CFO Certification The CEO and the CFO certify that they: accept the responsibility for establishing and maintaining internal controls; have evaluated the effectiveness of internal control systems have disclosed to the Auditors and the Audit Committee: – deficiencies in internal controls (in design & operation) and – remediation steps (taken or proposed to be taken) They have indicated to the Auditors and Audit Committee significant changes in internal control during the year
17 Understanding Internal Controls
18 Internal Controls Internal control is defined as a process affected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It means policies framed by the management in order to have stronger and adequate control within the organization which can be checked by the internal auditor in order to ensure that the goals and objectives are duly met.
19 Components of Internal Controls Control Environment Risk Assessment Control Activities Information and CommunicationMonitoring
20 Equation of Internal Control General Financial Controls IS Controls Internal Controls
21 IS Controls Application Controls IT General Controls
22 Objective of IS Controls Maintaining Confidentiality Preserving Integrity Ensuring Availability
23 Applications Controls Application software is the software that processes business transactions. The application software could be a payroll system, a retail banking system, an inventory system, a billing system or, possibly, an integrated ERP. It is the application software that understands data with reference to their business context. The rules pertaining to the business processes are implemented in the application software.
24 Examples of Applications General Ledger Fixed Assets Inventory Control Enterprise Resource Planning Human Resources And, everyones favorite – Payroll…
25 Types of Application Controls Input Controls Processing Controls Output Controls Integrity Controls Manageme nt Trail
26 Examples for Application controls Input Controls Data checks and validations Automated authorization, approval, and override Automated SOD Processing Controls Automated file identification and validation Automated functionality and calculations Audit trails and overrides Data extraction, filtering, and reporting Interface balancing Automated functionality and aging Duplicate checks Output Controls General ledger and sub- ledger posting Update authorization
27 Examples for Application Controls Integrity Controls Data encryption, which locks data by cipher Data backup, which stores a copy of data in an alternate location Access controls, including assignment of read/write privileges Input validation, to prevent incorrect data entry Data validation, to certify uncorrupted transmission Management Trail Systems Control Audit Review File and Embedded Audit Modules (SCARF/EAM) Snapshots Audit hooks Integrated Test Facility Continuous and Intermittent Simulation
28 General Controls IT general controls (ITGC) are controls that apply to all systems components, processes, and data for a given organization or information technology (IT) environment. The objectives of ITGCs are to ensure the proper development and implementation of applications, as well as the integrity of programs, data files, and computer operations. ITGCs may also be referred to as General Computer Controls which are defined as: Controls, other than application controls, which relate to the environment within which computer-based application systems are developed, maintained and operated, and which are therefore applicable to all applications. These are policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems.
29 Types of IT General Controls Logical access controls over infrastructure, applications, and data. System development life cycle controls. Program change management controls. Data center physical security controls. System and data backup and recovery controls. End User controls. IS Security
30 Key areas which needs attention Logical Access Grant of access Revocation of Access SDLC Documentation of Requirements Integration testing and UAT Training to end users Change Management Source Code versioning Rollback Plan Release Management Archival of older versions
31 Key areas which needs attention Data Center and Physical Access Physical Locks and Bio metric locks Data Center Environment Security Personnel Backup and Recovery Backup Procedures Recovery Procedures Application data and environment Backup Tapes End User Acceptable Usage Password Policy Ticket Management Logs and Review
32 Antivirus Firewall Wireless Network Computers Server Computers Network Servers Computers Encryption MAC Filter Patch Updates Virus Definition Updates Automatic Log out and screen lock Key areas which needs attention – IS Security
33 Summary With the advent of IT in every sphere of business it have been evident that we Chartered Accountants need to rise and seize this opportunity.
34 Check out When are these opportunities?? Half our life is spent trying to find something to do with the time we have rushed through life trying to save. Will Rogers