Auditing Computer-Based Information Systems Chapter 11

Learning Objectives Describe the nature, scope, and objectives of audit work, and identify the major steps in the audit process. Identify the six objectives of an information system audit, and describe how the risk-based audit approach can be used to accomplish these objectives. Describe the different tools and techniques auditors use to test software programs and program logic. Describe computer audit software, and explain how it is used in the audit of an AIS. Describe the nature and scope of an operational audit.

Auditing The process of obtaining and evaluating evidence regarding assertions about economic actions and events in order to determine how well they correspond with established criteria

Major Steps in the Auditing Process Audit planning Why, how, when, and who Establish scope and objectives of the audit; identify risk Collection of audit evidence Evaluation of evidence Communication of results

Risk-Based Framework Identify fraud and errors (threats) that can occur that threaten each objective Identify control procedures (prevent, detect, correct the threats) Evaluate control procedures Review to see if control exists and is in place Test controls to see if they work as intended Determine effect of control weaknesses Compensating controls

Information Systems Audit Using the risk-based framework for an information systems audit allows the auditor to review and evaluate internal controls that protect the system to meet each of the following objectives: Protect overall system security (includes computer equipment, programs, and data) Program development and acquisition occur under management authorization Program modifications occur under management authorization Accurate and complete processing of transactions, records, files, and reports Prevent, detect, or correct inaccurate or unauthorized source data Accurate, complete, and confidential data files

1. Protect Overall System Security Threats Controls Theft of hardware Damage of hardware (accidental and intentional) Loss, theft, unauthorized access to Programs Data Unauthorized modification or use of programs and data files Unauthorized disclosure of confidential data Interruption of crucial business activities Limit physical access to computer equipment Use authentication and authorization controls Data storage and transmission controls Virus protection and firewalls File backup and recovery procedures Disaster recovery plan Preventive maintenance Insurance

2. Program Development and Acquisition Occur under Management Authorization Threat Controls Inadvertent programming errors Unauthorized program code Review software license agreements Management authorization for: Program development Software acquisition Management and user approval of programming specifications Testing and user acceptance of new programs Systems documentation

3. Program Development and Acquisition Occur under Management Authorization Threat Controls Inadvertent programming errors Unauthorized program code List program components to be modified Management authorization and approval for modifications User approval for modifications Test changes to program System documentation of changes Logical access controls

4. Accurate and Complete Processing of Transactions, Records, Files, and Reports Threats Controls Failure to detect incorrect, incomplete, or unauthorized input data Failure to correct errors identified from data editing procedures Errors in files or databases during updating Improper distribution of output Inaccuracies in reporting Data editing routines Reconciliation of batch totals Error correction procedures Understandable documentation Competent supervision

5. Prevent, Detect, or Correct Inaccurate or Unauthorized Source Data Threat Controls Inaccurate source data Unauthorized source data User authorization of source data input Batch control totals Log receipt, movement, and disposition of source data input Turnaround documents Check digit and key verification Data editing routines

6. Accurate, Complete, and Confidential Data Files Threats Controls Destruction of stored data from Errors Hardware and software malfunctions Sabotage Unauthorized modification or disclosure of stored data Secure storage of data and restrict physical access Logical access controls Write-protection and proper file labels Concurrent update controls Data encryption Virus protection Backup of data files (offsite) System recovery procedures

Audit Techniques Used to Test Programs Integrated Test Facility Uses fictitious inputs Snapshot Technique Master files before and after update are stored for specially marked transactions System Control Audit Review File (SCARF) Continuous monitoring and storing of transactions that meet pre- specifications Audit Hooks Notify auditors of questionable transactions Continuous and Intermittent Simulation Similar to SCARF for DBMS

Software Tools Used to Test Program Logic Automated flowcharting program Interprets source code and generates flowchart Automated decision table program Interprets source code and generates a decision table Scanning routines Searches program for specified items Mapping programs Identifies unexecuted code Program tracing Prints program steps with regular output to observe sequence of program execution events

Computer Audit Software Computer assisted audit software that can perform audit tasks on a copy of a company’s data. Can be used to: Query data files and retrieve records based upon specified criteria Create, update, compare, download, and merge files Summarize, sort, and filter data Access data in different formats and convert to common format Select records using statistical sampling techniques Perform analytical tests Perform calculations and statistical tests

Operational Audits Purpose is to evaluate effectiveness, efficiency, and goal achievement. Although the basic audit steps are the same, the specific activities of evidence collection are focused toward operations such as: Review operating policies and documentation Confirm procedures with management and operating personnel Observe operating functions and activities Examine financial and operating plans and reports Test accuracy of operating information Test operational controls

Key Terms Auditing Internal auditing Financial audit Information systems audit Operational audit Compliance audit Investigative audit Inherent risk Control risk Detection risk Confirmation Reperformance Vouching Analytical review Materiality Reasonable assurance Systems review Test of controls Compensating controls Source code comparison program Reprocessing Parallel simulation Test data generator Concurrent audit techniques Embedded audit modules Integrated test facility (ITF) Snapshot technique System control audit review file (SCARF) Audit log

Key Terms (continued) Audit hooks Continuous and intermittent simulation (CIS) Automated flowcharting program Automated decision table program Scanning routines Mapping programs Program tracing Input controls matrix Computer-assisted audit techniques (CAAT) Generalized audit software (GAS)