Week 6 - Testing and Evaluation of Systems

Question 1

Reliance on controls

Answer 1

Judgement

Question 2

Compliance tests

Answer 2

Test of controls
Test that is carried out to ensure the organisation is following its own policies and procedures in a particular area
To confirm whether or not internal controls are satisfied and whether they can be relied upon

Question 3

Compliance test questions

Answer 3

Is it as description?
Is it the same throughout the year? (Seasonal)
Any practical weaknesses not apparent?
Are sale transactions properly authorised?
Check returns records to credit notes

Question 4

Compliance test examples

Answer 4

Extended walk-through tests of info/audit trail = cradle to grave 
Block testing one aspect of system
-easy but not statistical test 
Interviews w/ staff 
Observation of staff
Re-performance of control procedures 
-counts/reconciliation 
Exam of management reviews

Question 5

Auditor computer system strategies

Answer 5

Round the computer
Through the computer
With the computer

Question 6

Auditing Round the computer

Answer 6

Picking source documents at random and verifying the corresponding output with inputs

Question 7

Auditing through the computer

Answer 7

Also known as CAATs - computer assisted audit techniques
Used for:
Testing system - test of controls
Testing data - transactions&balances

Question 8

Auditing with the computer

Answer 8

Using it as a tool

Question 9

Specific test of controls in computer systems

Answer 9

Code review of programs
Test data
Program code comparison

Question 10

Code of reviews

Answer 10

Designed to determine if there are defects in programs that will cause incorrect processing of data
Tend to be costly in time
Need expert knowledge-auditor reliance

Question 11

Test data

Answer 11

Assembled by auditor and passed through the system to see if the data are processed as expected 
Must be representative of real data 
- some use computer-generate test data 
Live test data - normal processing run
Dead test data - outside normal run 
Issues : corruption of files

Question 12

Program code comparison

Answer 12

Used to compare the program being tested with a program known to be authorised version
Interpretation of results needs expertise
The discrepancies might reveal that unauthorised changes have been made to program - don’t detect defensive programs

Question 13

Continuous review of data

Answer 13

Integrated test facility (ITF)

Systems control and review file (SCARF)

Question 14

ITF

Answer 14

Integrated test facility (IFT)
Created simulated transactions - w/ special code - and then processed with client data
Issues:
Need data reviewed
Have to be reversed correctly
Can be random throughout year
Client can identify data and process differently to real data

Question 15

Substantive tests

Answer 15

Tests to obtain audit evidence to detect material misstatements in financial statements
Analytical procedures
Other substantive procedures - tests if details of transactions and balances

Question 16

Reason for auditing

Answer 16

to form an opinion - true and fair
No mention of controls and systems
MUST perform substantive procedures
Carry out tests to prove transactions/balances = genuine, accurate, complete

Question 17

Traditional substantive testing

Answer 17

Manual testing
Work in client environment - observe
Physical documents - invoices, GRNs
Understand practical issue better
Learn about differing business practices
More able to give sensible business advice

Question 18

Audit software

Answer 18

• Access files and manipulate data
• Select data on basis of predetermined criteria&perform arithmetical functions
• Analyse data statically and stratify it into desired categories
• Cause files to be created and updated from company files
• Produce reports for the auditor in desired format

Question 19

Audit softaware examples

Answer 19

List large sales transactions for review
List sales sold at below official price
Test stock overhead allocation calcs
List unusual purchases
List new suppliers - check for authorisation
Recalculate payroll calculations
List fully depreciated assets - neg assets

Question 20

Directional testing

Answer 20

Test debit balance for OVERstatement

Test credit balance for UNDERstatement