analytical aspects of audit stephen allen, acba. aspects covered sample selection from paper lists...

Analytical Aspects of Audit

Stephen Allen, ACBA

Aspects Covered

• Sample selection from paper lists or multiple sources

• Simulating applications in MS Excel

• Presentational power of the ‘If…’ function in MS Excel

Sample Selection

• Methods - advantages & disadvantages

• ACBA function for random selection– preparation for and use of the function– presentation of results and audit trail

• Access to ACBA Random Sampling

Selection Methods

Method Advantages Disadvantages

Judgement Quick Poor coverage, biasedcoverage

Each nth transaction Avoids bias Requires preparation toensure full coverage

Random selection Full coverage, avoidsbias – can be used as abasis for understandinga system

Requires detailedpreparation and a needto remember randomnumber methodologyand how to use it. Oftentakes too long.

Preparation - complete the form

Preparation Explained• Size of sample & test name

– decide how many transactions you want to select– how do you want to identify this test?

• For each source– give it a unique name - one that you can recognise– how many pages are there?– count how many transactions there are

• on the first page

• on the inner pages

• on the last page

• Click ‘Enter Details’– you will be asked whether you want to include another source

Select the sample

• Click ‘Yes’ to the above message box

• unless you have variable numbers of transactions on the inner pages of your list

The Results• You will be presented with

– a list of selected transactions– in ascending order - for ease of locating them– without duplicates– showing

• the random number which determines the page selected

• the page number within the source

• the name of the source

• the nth transaction selected within that page

It will look like

ACBA Random Sampling function - availability

• Available from ACBA web site

• no charge for single copies

• anonymous download

• web site address http://www.acba.co.uk

Simulating Applications

• Deciding what to simulate• Design on a spreadsheet• Gathering input

– input controls

• Processing – creating formulae

• The Results– what do they really mean?

• Summarising the results

What to Simulate• Standard system

– input & associated control

– processing & associated control

– output

• Primary interest is in ‘processing’– all other elements including the system’s controls

can usually be discarded

– otherwise you are, in effect, rebuilding the system

Design on a spreadsheet

• Separate permanent data from transaction data

• Use columns and rows as if you were writing a working paper– left to right then downwards

• Use different colours or other presentational devices to show the data entered and the associated results

• Hide columns or rows of formulae in preference to using spreadsheet protection– protection hinders access to useful functionality

• If possible, keep to a single screen without scrolling

Design on a spreadsheet - in practice

Permanent data separate

Green - to enter data, Red - for result

Rows 14 - 18 hidden for protection

Spreadsheet - impractical to fit on one screen without scrolling

Data input

• You will need – all the transactional and permanent data

necessary to carry out the calculation, and– the results from the original system, so that you

can make a comparison

• Do not allow comparative results to show unless all the necessary data is there

Data input - practice 1

• Wherever practicable explain the type of input required

• Validate the type of input if there is serious risk of error

Data Input - practice 2

• monitor entries as they are made• make sure you gather all the data you need• Cell ‘J6’ states - if Cell ‘I6’ is a number enter fig 1

otherwise leave blank• Cell ‘J9’ states - if all the required entries contain valid

data enter fig 3 otherwise leave blank

Processing

• Mimicking the system’s calculations– break the calculations into easy to understand chunks

– ensure you process them in the correct and logical order

– compare results to system’s output

• Note, when handling cumulative calculations, the first formula is always different to all subsequent ones

Data input and processing- practice 3

The Results

• Literally, that the two approaches do or do not agree– always more likely that the simulation has an error if

agreement not achieved

– validate simulation independently before assuming system error.

• Correction of errors in simulation generates a much improved understanding of the main system

Summarising the Results

• Automated summaries should be adopted only where the simulated system has been independently validated

• Often a good idea to provide for auditor interpretation of results first, even with validated systems

The ‘IF’ Statement

• The classic method of branching in computing

• Structure – set evaluation criteria– action if criteria are met– action if criteria are not met

• Syntax in MS Excel – ‘=IF(Criteria, True, False)’

‘IF’ - a worked example• =IF(D6 <> “”, D6, “”)

• this translates as, IF– the cell at D6 is not blank <> “”– places the contents of D6 in this cell– otherwise leave this cell blank

• very useful for avoiding situations where you do not want a calculation to take place before the appropriate data has been put in