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auditing in CBE Flashcards

1
Q

What are the two main categories of internal controls in a computer-based environment?

A

Application controls and general controls.

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2
Q

What do application controls relate to?

A

They relate to procedures used to initiate, record, process, and report transactions or other financial data to ensure accuracy and completeness.

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3
Q

What are the four categories of application controls?

A

Input controls, processing controls, output controls, and master files and standing data controls.

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4
Q

Give an example of an input control.

A

Edit checks, such as reasonableness checks or range checks.

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5
Q

What are processing controls designed to ensure?

A

They ensure the accuracy and completeness of data processing by comparing input and output totals.

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6
Q

What are output controls?

A

Controls that ensure the accuracy and completeness of output data, such as the controlled resubmission of rejected transactions.

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7
Q

What do master files and standing data controls involve?

A

They involve checking changes to master files and ensuring the accuracy of data such as customer price changes.

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8
Q

What are general controls?

A

Policies and procedures that support the effective functioning of application controls and maintain the integrity of data in various IT environments.

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9
Q

What do administrative controls include?

A

Controls over data centre operations, network operations, and access security.

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10
Q

What are system development controls?

A

Controls over system software acquisition, development, maintenance, program changes, and application system development.

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11
Q

What are computer-assisted audit techniques (CAATs)?

A

Techniques that use computers to apply auditing procedures, including audit software, test data, and other techniques.

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12
Q

What are the types of audit software used in CAATs?

A

Package programs, purpose-written programs, and enquiry programs.

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13
Q

What is the purpose of test data in CAATs?

A

To test the operation of application controls by processing dummy data with error conditions.

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14
Q

What is an integrated test facility?

A

A technique where dummy records are used within the client’s live system to test controls without corrupting master files.

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15
Q

What are embedded audit facilities?

A

Audit tools embedded into the client’s application software to perform audit functions and gather information for review.

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16
Q

How does a computer-based system impact audit planning?

A

Auditors need to consider the effect of IT on audit procedures, including data availability and CAATs.

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17
Q

What does ISA 315 require auditors to do regarding internal controls?

A

Obtain an understanding of internal controls, including both IT and manual systems.

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18
Q

What does ISA 330 require from auditors in response to assessed risks?

A

Design and perform further audit procedures based on assessed risks of material misstatement.

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19
Q

What is the difference between ‘round the machine’ and ‘through the machine’ approaches to testing?

A

‘Round the machine’ involves reconciling input and output without detailed testing of controls; ‘through the machine’ involves using CAATs to test controls directly.

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20
Q

What should auditors do when dealing with small computer-based systems?

A

They may use ‘round the computer’ auditing if sufficient evidence is obtained through testing input and output.

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21
Q

What is the integral role of IT in modern accounting and management information systems?

A

IT is essential for gathering, processing, and reporting financial information and is used by auditors to audit financial statements.

22
Q

What are the main aspects of auditing in a computer-based environment covered in the article?

A
  1. Application controls (input, processing, output, master file controls)
  2. Computer-assisted audit techniques (CAATs)
23
Q

What are application controls in a computer-based accounting system?

A

Application controls ensure the completeness and accuracy of accounting records and the validity of entries, covering input, processing, output, and master file controls.

24
Q

What are the objectives of input controls?

A

To ensure that input data is authorized, complete, accurate, and timely.

25
Q

List some specific input validation checks.

A
  1. Format checks
  2. Range checks
  3. Compatibility checks
  4. Validity checks
  5. Exception checks
  6. Sequence checks
  7. Control totals
  8. Check digit verification
26
Q

What do format checks ensure in input controls?

A

That information is input in the correct format, e.g., dates in numeric format only.

27
Q

What do range checks ensure in input controls?

A

That the information input is reasonable and within expected limits, e.g., purchase invoices not exceeding $50,000.

28
Q

What do compatibility checks ensure in input controls?

A

That data input from two or more fields is compatible, e.g., sales invoice values and sales tax amounts.

29
Q

What do validity checks ensure in input controls?

A

That data input is valid, e.g., costs for completed jobs are not input.

30
Q

What do exception checks ensure in input controls?

A

That unusual situations are highlighted in exception reports, e.g., negative inventory values.

31
Q

What do sequence checks ensure in input controls?

A

Completeness of processing by rejecting documents processed out of sequence, e.g., pre-numbered goods received notes.

32
Q

What do control totals ensure in input controls?

A

Completeness of processing by comparing pre-input control totals with input control totals, e.g., batch totals of purchase invoices.

33
Q

What is the purpose of check digit verification in input controls?

A

To ensure data accuracy using algorithms, e.g., validating supplier numerical reference codes.

34
Q

What are processing controls designed to ensure?

A

That data input is processed correctly and data files are updated accurately and timely.

35
Q

What are examples of processing controls?

A

Run-to-run controls, processing of rejected data, and following procedures for rejected items.

36
Q

What are output controls designed to ensure?

A

That data is processed correctly and output is distributed only to authorized users.

37
Q

List some common output controls.

A
  1. Use of batch control totals
  2. Review and follow-up of exception reports
  3. Timely data processing scheduling
  4. Formal distribution instructions
  5. Monitoring by a responsible official
38
Q

What is the purpose of master file controls?

A

To ensure the ongoing integrity of standing data contained in master files.

39
Q

List some master file controls.

A
  1. Use of passwords
  2. Amendment procedures with segregation of duties
  3. Regular checking of master file data
  4. Processing controls over updates
40
Q

What are Computer-Assisted Audit Techniques (CAATs)?

A

Techniques where auditors use computer tools to assist in auditing procedures, including audit software, test data, and other techniques.

41
Q

What are the three classifications of CAATs?

A
  1. Audit software
  2. Test data
  3. Other techniques
42
Q

What are the two types of audit software?

A
  1. Packaged programs
  2. Purpose-written programs
43
Q

What are packaged programs in audit software?

A

Pre-prepared general programs used for various audit tasks, such as sample selection and arithmetic checks

44
Q

What are purpose-written programs in audit software?

A

Client-specific programs used for particular audit tasks, such as re-performing control procedures or analyzing balances.

45
Q

What are enquiry programs in audit software?

A

Programs integral to the client’s system but adapted for audit purposes, e.g., reporting employee starters and leavers.

46
Q

What is the purpose of audit test data?

A

To test the existence and effectiveness of controls built into an application program by processing dummy transactions and comparing results.

47
Q

What is an integrated test facility?

A

A special setup within the accounting system where dummy records are processed alongside live data to avoid corrupting the client’s system.

48
Q

What are embedded audit facilities (EAFs)?

A

Programs embedded in the client’s application software to perform audit functions, such as tagging transactions and recording audit results.

49
Q

What is application program examination in auditing?

A

Comparing application controls before and after system amendments to ensure proper implementation and reliability.

50
Q

How should auditors approach audits in computer-based environments?

A

By adapting audit approaches, planning, and techniques to the computer-based systems, while ensuring key audit objectives remain unchanged.

51
Q
A

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