internal control framework of a compliant erp system · internal control framework of a compliant...

Accepted Manuscript

Title: Internal Control Framework of a Compliant ERP System

Author: Jing Fan Pengzhu Zhang David C. Yen

PII: S0378-7206(13)00115-8DOI: http://dx.doi.org/doi:10.1016/j.im.2013.11.002Reference: INFMAN 2675

To appear in: INFMAN

Received date: 1-2-2012Revised date: 17-10-2013Accepted date: 4-11-2013

Please cite this article as: J. Fan, P. Zhang, D.C. Yen, Internal ControlFramework of a Compliant ERP System, Information & Management (2013),http://dx.doi.org/10.1016/j.im.2013.11.002

This is a PDF file of an unedited manuscript that has been accepted for publication.As a service to our customers we are providing this early version of the manuscript.The manuscript will undergo copyediting, typesetting, and review of the resulting proofbefore it is published in its final form. Please note that during the production processerrors may be discovered which could affect the content, and all legal disclaimers thatapply to the journal pertain.

http://dx.doi.org/doi:10.1016/j.im.2013.11.002

http://dx.doi.org/10.1016/j.im.2013.11.002

of 44

Accep

ted

Man

uscr

ipt

Internal Control Framework of a Compliant ERP System

Abstract

After the occurrence of numerous worldwide financial scandals, the importance of related

issues such as internal control and information security has greatly increased. An internal

control framework that can be applied within an enterprise resource planning (ERP) system is

developed in this study. A literature review is first conducted to examine the necessary forms

of internal control in information technology (IT) systems. The control criteria for the

establishment of the internal control framework are then constructed. A case study is

conducted to verify the feasibility of the established framework. This study proposes a 12-

dimensional framework with 37 control items aimed at helping auditors perform effective

audits by inspecting essential internal control points in ERP systems. The proposed

framework allows companies to enhance IT audit efficiency and mitigates control risk.

Moreover, companies that refer to this framework and consider the limitations of their own IT

management can establish a more robust IT management mechanism.

Keywords: internal control framework, enterprise resource planning, IT control

of 44

Accep

ted

Man

uscr

ipt

1. Introduction

The popularity of information technology (IT) applications has increased reliance on

computers in processing business transactions. Companies adopt IT systems to improve their

operations. The surveys on the collaborative operations of IT systems conducted by the

Market Intelligence and Consulting Institute [42] indicate that enterprise resource planning

(ERP) system is the most adopted IT system among large companies.

Given that ERP is a popular and all-encompassing information system utilized by many

organizations and owing to the increased consideration of the risks associated with IT,

information system security and internal control related to information systems have greatly

increased [17, 45, 63, 75]. The Committee of Sponsoring Organizations of the Treadway

Commission (COSO) defines internal control as “a process, effected by an entity’s board,

management, and other personnel, designed to provide reasonable assurance regarding the

achievement of objectives such as effectiveness and efficiency of operation, reliability of

financial reporting, and compliance with regulation” [15]. The internal control related to

information systems is commonly referred to as IT control, which is composed of controls

(i.e. policies and procedures) over organizational IT infrastructure and systems [47, 63]. IT

control consists of general and application controls. General controls refer to these relevant

controls designed to ensure an entity’s control environment is well managed, and applied to

all sizes of systems ranging from large mainframe systems to client/server systems and to

desktop and/or laptop computer systems. Whereas application controls include input,

processing, and output control based on the flow of data processing. In other words,

application controls focused on the accuracy, completeness, validity, and authorization of the

data captured, entered in the system, processed, stored, transmitted to other systems, and

reported [54]. Further, general controls can be used to support the application controls and

hence, allow information system be smoothly operated [22]. Given that financial reporting in

many entities is based on information systems such as ERP systems, IT controls help entities

achieve the objective of internal control. Similar to information security, IT controls can also

of 44

Accep

ted

Man

uscr

ipt

manage and protect information and information systems from unauthorized access, use,

disclosure, disruption, modification, or destruction [68].

An attack on information generally leads to theft of confidential data, financial fraud,

incapacitated web server, and corrupted operation data [27], which all influence the accuracy

and reliability of financial data derived from the information system [75]. If entities fail to

establish proper information security, they cannot guarantee the accuracy and reliability of

financial data [51]. ERP built-in control features may prove to create a positive impact on the

effectiveness of internal controls over financial reporting. However, ERP does not necessarily

safeguard against some deliberated systems’ manipulations, for example, a few of the control

features might not be activated in a timely manner on the implementation stage [45]. Further,

in order to manipulate the date for performing the earning management, top managers may

attempt to override some control features [6]. Following a number of reported business

scandals, investors are beginning to question the accuracy of financial reports, including those

generated by major companies in the world. In fact, the confidence of investors in the

accuracy of financial reports and the shared holding positions of large companies has

collapsed over the recent years [56]. Durfee [18] emphasizes that the announcement of

material weakness in the internal control system may result in a drop in stock prices, increase

in share volume, and loss of chief financial positions. Goel and Shawky [26] also indicate that

announcements of security breaches would decrease the market share of firms. Conversely,

effective internal control can help firms achieve their expected financial goals, maintain

precise records of daily transactions, and produce accurate financial statements [20]. The

accuracy and reliability of data within the ERP system are critical to ensure the transparency

of the company’s situation at all times, help rebuild investor confidence, and ensure low cost

of capital [3].

Software vendors establish “built-in” control in ERP systems [45]. Companies also have

an internal control framework in their ERP systems. Management is required to establish the

framework, especially when a company is publicly listed. Companies constantly audit the

of 44

Accep

ted

Man

uscr

ipt

effectiveness of the ERP system’s internal control. Thus, an increasing number of companies

have started to focus on the implementation of effective controls in their ERP systems while

simultaneously providing the management and external auditor a suitable framework to assess

the ERP system’s internal control. COSO released a report entitled “Internal Control-

Integrated Framework” [15] in 1992 in an attempt to illustrate a systematic framework for

internal control. However, the report failed to list supplemental criteria in the implementation

and assessment of IT controls [49]. Referring to specific control items would allow the

management and auditor to execute IT control procedures [29]. However, IT control

procedures not only consider the environment within the entity but also the control related to

the external environment [66]. In addition, given the minimal compliance guidance in the use

of IT sets by the government, the interpretation of the scope and nature of the IT environment

is inconsistent [8]. These limitations increase the difficulty of compliance. Despite the

importance of deploying proper internal control frameworks to fully develop the effectiveness

of the ERP system, only a few academic studies have assessed this issue. Accordingly, this

study derived the main research question, that is, what are the types of internal control that

must be considered when auditing an ERP system? The primary objective of this study is to

develop a preliminary internal control framework for application in an ERP system.

2. Research Background

The growing awareness of IT’s role in managing knowledge derived from information

systems has caused the production of accurate and relevant information to become the focus

of studies on information systems such as accounting information systems (AIS) and

management information systems (MIS) [76]. IT governance has been discussed recently and

has gained attention; IT governance is “used to describe how those persons entrusted with

governance of an entity will consider IT in this supervision, monitoring, control, and direction

of the entity” [32]. Well-defined controls are considered an imperative and necessary part of

IT governance. This study attempts to establish good internal control standards for ERP

systems by proposing an internal control framework for such systems. Three subtopics are

discussed in this section. The first subsection describes the system security and internal

of 44

Accep

ted

Man

uscr

ipt

controls in the ERP system. The second subsection introduces the audit and inspection

challenges associated with the ERP system. The third subsection presents and discusses the

internal control framework.

2.1 System security and internal controls in the ERP system

An increasing number of firms depend on ERP to address operational transactions.

Therefore, information system security must be emphasized, especially in financial

transactions [70, 73]. Walters [75] states that many information system threats, such as

unauthorized access and system vulnerability attacks, influence the accuracy and reliability of

financial data derived from information systems. Information security protects and controls IT

resources and ensures the accuracy and reliability of information [1]. Van de Riet et al. [69]

noted a number of security aspects associated with an ERP system; these aspects include

security policy, user authentication, authorization, time restriction, log and trace, and database

security.

Information security control maintains the reliability of the information system resource

and the availability and integrity of financial data. Thus, information security control is

closely linked with information security and internal controls. After the occurrence of

numerous worldwide financial scandals, company management teams and auditors are now

required to take responsibility for their respective financial reports. The effectiveness of

internal control has been emphasized in this decade [52]. If firms lack the proper level and

type of information security, they cannot ensure the effectiveness of their internal controls and

the integrity of their financial data [51]. Thus, identifying the necessary control-related

considerations in an ERP system is an important initial task for management and auditors.

2.2 Audit and inspection challenges in the ERP system

The introduction of a new information system in a company may generate a risk different

from that initially associated with the legacy framework. The risks that accompany new

framework operations may not be similar to those of the original system [50]. Reengineering

of the business process and organizational changes brought about by the introduction of a new

system may also lead to the changes in the control requirements of a company in terms of

of 44

Accep

ted

Man

uscr

ipt

ERP [11]. Problems frequently associated with the ERP system are generally contained. Such

issues include business interruption, process interdependency, network security, database

security, application security, and overall internal controls [31]. Therefore, many key aspects

in the risk control environment must be considered [56]. Glover et al. [25] suggest that

internal auditors consider the relevant risks and controls required for system planning based

on knowledge of risk management and the internal risks present in the company during the

introduction of the ERP system. Auditors and inspectors should first understand the basic

architecture of the ERP system to effectively exert internal control over the ERP system [2,

9]. In the comprehensive application of the IT environment, “owning” the control framework

can help auditors evaluate the effectiveness of IT control and decide on an auditing strategy

and program. The control framework can also enhance the efficiency of IT control evaluation

and mitigate the audit risk for auditors [29].

2.3 Internal control framework

The management and auditors must follow a suitable and holistic internal control

framework to ensure the effectiveness of internal control in a firm. COSO released a report

entitled “Internal Control-Integrated Framework” and recommended that this report be

utilized by companies, auditors, regulating agencies, and educational institutions [15]. The

conceptual model of the report indicates that internal control objectives require five

components of control, namely, the control environment, risk assessment, control activities,

information and communication, and monitoring.

However, the framework provided by COSO focuses on high-level guidance of internal

controls and does not provide the detailed control objectives that auditors require in the

design of audit tests [49]. Moreover, the framework does not address the specific risks and

complexities of IT [14]. An organization and its auditor require a comprehensive framework

to adapt properly to the current IT auditing environment and to comply with regulations [66].

Transactions involving information systems require particular control standards and

criteria because IT utilization presents difficulties in inspecting the audit trails of business

operations. The computerization of business transactions leads to the digitization of audit

of 44

Accep

ted

Man

uscr

ipt

evidence, resulting in difficulties in following audit trails [41]. Thus, IT internal control

usually includes the following procedures: (1) general controls, which refers to the relevant

control measures associated with EDP; and (2) application controls or the division of input,

processing, and output controls based on the flow of data processing.

In this digital age, the absence of information security in a certain company implies that

the entire company is built on a fragile foundation such that it cannot survive any related

internal control tests [4]. Information systems in enterprises require many internal controls

owing to the pervasive implementation of IT and the need to minimize problems. The

complexity of modern systems can overwhelm auditors and the management if no appropriate

guidance is provided [66]. Hence, auditors and the management should increase their

understanding of the IT environment and related IT processes and controls because they must

perform control procedures periodically [44, 47]. Given that the two control types utilized at

present cannot effectively or completely regulate the robustness of an internal control

framework especially when incorporated in present information systems, numerous

institutions have established their own sets of criteria for information security. A series of

standards and criteria such as the British Standard (BS7799) and the Control Objectives for

Information and Related Technology (COBIT) is employed by organizations. COBIT

complements the COSO enterprise framework in terms of assessing internal control and

balanced risks in IT-intensive environments [33, 53]. Huang et al. [29] established an IT

control evaluation model that includes control objectives. Referring to specific control items

would allow the management and auditor to execute control procedures. However, despite the

importance of deploying proper internal control frameworks, only a few academic studies

have been conducted to fully develop the effectiveness of the ERP system. The present study

aims to develop a preliminary internal control framework for application in ERP systems to

bridge such gap.

3. Research methodology and design

The research flow presented in this study utilized a theoretical strategy based on the V

structure developed by Gowin [48] (Figure 1). The interactions between the two sides of the

of 44

Accep

ted

Man

uscr

ipt

structure (i.e. theoretical and methodological) merge relevant concepts and methods to

achieve the proposed research goals [48]. Following the procedures listed on the “theoretical”

side, the items related to IT control were summarized by studying the previous research. A

literature review is thus conducted prior to the development of an internal control framework

for ERP systems. To this end, two steps were performed in the literature review and they are

collecting literature from the related sources and conducting coding procedures. In specific,

relevant literature was gathered from the following sources.

(1) IT controls for the internal use of companies. The data gathered are expected to be these

within the scope of the internal use of companies and can be compiled with the current

internal control bylaws of corporate information systems;

(2) Information security organization bylaw. This study refers to the regulations and criteria

of COBIT and BS7799 in particular and includes all information systems. Both

references are important as they have been adopted by many companies worldwide [66];

and

(3) Academic literature

-----------------------------------------------

Insert Figure 1 here

-----------------------------------------------

Upon the completion of the initially constructed theoretical model and prior to

conducting the case study, the control items were established to meet the requirements needed

in the application of the model to the ERP system. In fact, expert questionnaires were

administered in this process. The main purpose of utilizing the expert questionnaires is to

ensure and enhance the content validity of each of the measurement constructs and to bridge

the gap between the presented literature for application and these in actual practice. The

measurement constructs and item indicators were screened separately to determine the

internal control issues prevalent in the ERP system as well as to enhance the quality of the

of 44

Accep

ted

Man

uscr

ipt

examination process and gain deeper insights.

Following the procedures outlined on the “practical” side, an empirical case study was

then conducted to investigate the feasibility of the proposed framework derived from

literature review and the questionnaires. The case study included “how” and “why” questions

[79] and a pre-identified company was selected for the case study. In addition, the case study

included the steps related to design, preparation, collection, analysis, and sharing [79]. Not

only the case design was identified in the design step, but also the unit of case study was

described in detail in this step.

4. Construction of the preliminary framework for the internal controls of the ERP

system

The Science Direct database was utilized to search for academic literature. The main

criteria for this search may include the following items.

(1) Keywords or abstract sections must have the words “information security” or “internal

control”;

(2) Literature must be related to information field; and

(3) Studies should be published within 2003 to 2007 since numerous financial scandals

emerged worldwide were mainly occurred after 2002 and the issue of internal control

was happened during this aforementioned period. Consequently, several regulations

which requested the management to assess their own enterprise internal control were

proposed, and auditors were also asked to determine whether their client’s internal

control assessment report was adequate. Form the above discussion, the studies collected

in this research are limited to this aforementioned period to investigate what have been

discussed or explored during this specific time window.

Conceptualized results from 30 relevant publications were collected based on the

abovementioned criteria. The collected results are shown in Table 1. A detailed analysis was

also performed to present a complete and consistent list of internal control items for ERP. The

preliminary model was constructed based on the literature review. The entire process was

roughly divided into three steps as follows: (1) open coding, (2) axial coding, and (3)

of 44

Accep

ted

Man

uscr

ipt

selective coding.

-----------------------------------------------

Insert Table 1 here

-----------------------------------------------

4.1 Open coding

Open coding was performed for the literature contents that satisfied the criteria

mentioned above. Section extraction was performed, and the sections identified as relevant to

the internal controls of the information operations or those that obviously indicate the

components of the IT control of the information operations are coded. Coding was conducted

to classify the studies from A to C. The codes derived from IT control for the internal use of

companies, information security organization bylaws, and academic literature were classified

as A, B, and C, respectively. For example, “C Company—Computerized Information System

ICE” includes a section that addresses internal regulations. More specifically, this section

states, “going online requires test reports or passing of tests.” This description can thus be

conceptualized and coded into three factors (i.e., A216 whether test documents exist, A217

whether independent test environments exist, or A218 whether they have been verified by

users). A total of 670 concepts were derived by this process.

Accurate and complex interpretations were established as certain phenomena. For

instance, codes A78, A108, A114, A115, A177, A192, A252, B15, B16, B17, B31, B46, B104,

B154, B162, C40, C61, C87, C114, C158, C170, and C219 describe anomalies in the

information system, how the information department is contacted and informed, how the

information department rules out anomalies, and how information security incidents are

addressed. Thus, these codes (concepts) were grouped in the domain of “whether procedures

exist to report disasters.” The other concepts were translated into domains according to the

same rule; 66 domains were established as internal control key issues based on the 670

concepts determined in the open coding process.

4.2 Axial coding

Axial coding is usually conducted after open coding. This stage aims to recompose the

of 44

Accep

ted

Man

uscr

ipt

distributed data into new methods such that the classifications and sub-classifications become

related to one another.

The 66 domains of the coded entries were further classified into dimensions. For example,

the domains “whether relevant control procedures exist regarding system outsourcing” and

“whether contracts are signed for system outsourcing” are related to the outsourcing operation

control and are imperative in managing system outsourcing for an organization. Therefore,

these domains were classified into the dimension of “control of outsourced operations.” The

results of axial coding are summarized in Table 2.

-----------------------------------------------

Insert Table 2 here

-----------------------------------------------

4.3 Selective coding

Axial coding consolidates complex data and is the foundation of selective coding.

Selective coding is conducted to explain a selected core category systematically, verify the

relationship of the main and other classifications, and fill the gap for supplements or

developments required for individual classifications [64].

Based on the internal controls and the analysis of relevant literature, 66 key domains that

influence the internal control of information systems were identified. The domains integrated

through axial coding were re-classified as single key domains in selective coding. For

example, the domains “whether anti-virus measures are used” and “whether firewalls are

used,” were merged into “whether information equipment is protected with security

measures” given that both are related to the security measures of the information equipment.

Subsequently, 51 key domains were established. These domains function as internal control

items.

4.4 Expert Questionnaires

Upon the construction of the preliminary internal control items based on literature, the

methodology and validation process developed by Lawshe [37] was adopted. The adoption of

this methodology and validation process enabled the collection of opinions from experts with

of 44

Accep

ted

Man

uscr

ipt

extensive experience in the establishment, maintenance, and auditing processes of the ERP

system. Questionnaires were distributed to gather the opinions from experts who are

responsible for the corporate functions (including internal audit and information), handle

external audits (accounting firms), and work in some partner companies regarding the

introduction of an ERP system. The backgrounds of the participating experts are shown in

Table 3. The control dimensions and items were screened to determine those suitable for the

ERP system. Both theoretical and actual application are expected to increase the validity,

extent, and practicality of this study, thereby achieving the research purpose of constructing

internal control in an ERP system.

-----------------------------------------------

Insert Table 3 here

-----------------------------------------------

The questionnaires utilized in this study measures the opinions of the respondents based

on an ordinal scale of 5 as follows: “very important (5),” “important (4),” “ordinary (3),”

“unimportant (2),” and “very unimportant (1).” Each dimension is semi-open so that the

respondents can provide relevant feedback on the key items related to internal control in the

ERP system.

A total of 18 experts responded to the questionnaires. Following the methodology and

validation process proposed by Lawshe [37], content validity ratio (CVR) can be calculated as

CVR = (n-N/2)/(N/2) where n represents the number of times that experts categorized the

items as either “very important” or “important” and N represents the total number of experts.

The value of CVR should be greater than 0.43 to meet the targeted requirement. However,

this study requires that CVR ratio be greater than 0.60 before a control item is adopted to

ensure that the control items constructed in this study remain important and feasible for most

companies. Table 4 provides a summary of the questionnaire results, including the statistics

from the questionnaires and the calculation of CVR.

As described previously, a literature review was conducted and 51 key items were

of 44

Accep

ted

Man

uscr

ipt

identified for the internal control of ERP systems. Fourteen items were considered

unimportant and were deleted after calculating and comparing the CVR values derived from

the questionnaires. The remaining 37 control items were generalized and consolidated. The

preliminary internal control items were further modified by referring to the suggestions

provided by the expert respondents. Table 5 shows the modified internal control framework.

-----------------------------------------------

Insert Table 4 here

-----------------------------------------------

-----------------------------------------------

Insert Table 5 here

-----------------------------------------------

5. Empirical findings on internal control for the ERP system

This section provides a brief description of the practices employed by the case company.

The selected company was established in 1996 and is dedicated to the development and

manufacturing of wireless telecommunication products. The company aspires to become the

world leader in the area of wireless telecommunications by exerting efforts in research and

development (R&D) which is aimed at improving technology. Its products are divided into

three lines; and they are namely, satellite telecommunications, mobile telecommunications,

and wireless network equipment.

The managers in the company can keep abreast of the key technologies associated with

their product lines in accordance with the changes occurred in the marketplace through their

extensive experience and background in technology. The company is thus capable of

developing the relevant niche products to meet the market demands by quickly integrating

telecommunication technologies into their product lines.

This company provides the comprehensive wireless and telecommunication products and

timely after-sale services to its customers. With its focus on the R&D of new technologies and

extensive in-house development of accompanied software and hardware, the company designs

of 44

Accep

ted

Man

uscr

ipt

and develops its own products effectively. In fact, the company has achieved their best

economies of scale by establishing an increasingly comprehensive product line. As a result,

the company is capable of maintaining its competitive advantage in the wireless

telecommunications industry.

The computer auditors working for the accountant were invited to participate in this

study. Interviews were also conducted to study the actual company’s operations with

collecting the current internal control information as primary data. The company was asked to

provide secondary data (i.e., relevant operation documents and files) for the analysis and

synthesis of the research findings. Table 6 summarizes the background of all the interviewees.

-----------------------------------------------

Insert Table 6 here

-----------------------------------------------

A select group of public companies that introduced ERP systems was filtered for the case

study. The company targeted for interview is the one engaged in the tasks of R&D and

manufacturing of wireless telecommunication products. The company actually replaced its

Baan computer system with the Oracle ERP system in 2006. The interviewees comprised an

internal auditing supervisor who facilitates two different ERP systems, an assistant manager

in the MIS Department who maintains and deploys these two different systems, and a

computer auditing manager who works for the accounting firm to audit the information

system of this company. In other words, these three individuals are responsible for the ERP

audit. All the three interviewees have relevant experience and background in the auditing and

maintenance of ERP systems.

A case study on a public company with the obtained audited financial reports was

conducted. A manufacturing firm similar to this telecommunications company can be

regarded as a representative case of companies in other industries. For this reason, this case

result can be employed and justified as a rationale for the use of a single case [79]. In specific,

the case study protocol was developed in the preparation step. Primary data about the actual

operations of the company were gathered on-site in the collection step, while secondary data

of 44

Accep

ted

Man

uscr

ipt

were utilized to address the main objectives of this research. Further, data were gathered,

analyzed, and collated prior to conducting the interviews with personnel who are experts in IT

control and have worked with the independent accounting firm maintaining a relationship

with the company selected in the case study. The feasibility of the internal control items that

were applied in the planning of the ERP system was evaluated in the analysis and sharing

steps. Finally, the results and findings were presented.

The control items and information auditing of the ERP system in the case company were

reviewed. The feasibility of the control items constructed for the company were also

evaluated.

(1) Practices within the case company

Two auditors are employed in the audit department of the case company. Their tasks

include inspecting domestic and overseas affiliates in the same group. In addition to adjusting

the internal control framework originally based on the “eight major cycles,” the two auditors

also perform internal audits and execute special projects assigned by their supervisors because

these tasks are part of their job description. In auditing ERP systems, the focus is on soft

control. The company’s MIS department has established a division called “ERP System

Services.” All seven employees in this division are responsible for the maintenance of the

ERP system. Their major responsibilities include maintaining the normal operations of the

system, solving all problems raised by users, and meeting the operational demands of users.

These employees perform ordinary control tests and passive checks on requests from the

auditing department as ERP system audits.

(2) Control items within the case company

The current audit checklist for ERP systems was originally based on the control items

listed by the company headquarters. The checklist was later modified in accordance with the

actual situations experienced by the company. The key control items comply with the criteria

set by the authority. However, these control items are not fixed and are regularly reviewed for

appropriateness.

Director Chen said, “After the introduction of the new Oracle ERP system in 2006, the

of 44

Accep

ted

Man

uscr

ipt

company conducted timely adjustments to ascertain control items.”

(3) Information auditing of the ERP system

The internal auditors of the case company focus their audit on soft control items in the

ERP system such as accounts, passwords, authorization, and remote access. The auditors are

equipped to perform only soft audits. Other forms of audits are delegated to the MIS

department as the internal auditors perform these tasks through collaborative procedures. The

definition of the items pertaining to overall control is modified by referring to previous audit

records. For example, each audit is performed on a regular basis (i.e., once a year) to

minimize risk. However, the items with poor records have a high-risk profile and are therefore

analyzed under strict standards (i.e., conducted quarterly or every semester).

Given that financial reports are generated by the company’s ERP system, the reporting

accounts must be spot-checked as a form of internal control to reduce confirmatory audit

risks. The computer audit personnel of the accounting firm check the system setups and the

ordinary control measures of the company.

Manager Li said, “Basically, auditing for the ERP system within the company is mainly

focused on general and basic checking of the Oracle ERP architecture in the UNIX operating

system, Oracle database, and network. These are the critical points of our audit.”

If audit results indicate that the internal control of a company is proper, then the

accountants may reduce the required number of spot-checking procedures. Auditing

procedures should be modified on a timely basis in accordance with the actual demands of

companies. The company under study was able to amend system faults and failures pointed

out by its external auditors. This review process should be performed continuously to

establish a robust internal control structure.

The difficulties encountered by the company’s ERP system auditors are caused by lack of

IT training. Consequently, the company can focus only on software controls. With regard to

the other forms of audits, the auditors remain dependent on the MIS department for

effectiveness. However, despite the sufficient IT knowledge of the personnel in the MIS

department, these personnel cannot perform audits effectively owing to control issues posed

of 44

Accep

ted

Man

uscr

ipt

by individuals, control measure requirements, and related auditing concepts. External auditors

continue to believe that most companies do not have any personnel dedicated to computer

audits.

Manager Li said, “Currently, the competent authority or relevant institutions are not

certified with regard to computer audits. In addition, most auditors claim they lack sufficient

IT training. Given the limited computer audit talents, very few companies have established a

stable computer audit department.”

In sum, the challenges involving ERP systems include whether auditors can clearly

understand the operational flows of the company and its overall information system

environment to effectively manage both the behavioral risks caused by human factors and the

technical risks integrated in a system. For auditors who do not have expertise in both audit

(accounting) and IT, the auditing processes in an ERP environment pose imminent obstacles

and challenges.

(4) Understanding the feasibility of the control items

Both interviewees concurred that the control items constructed in this study meet most of

the requirements. However, a suitable list of control items should consider the infrastructure

of the company, including the company scale and number of MIS employees. These

considerations are important because individual control points have important roles in legacy

information architecture. Accordingly, a number of control items cannot completely meet the

specifications of the company under study owing to limitations in identifying infrastructure

concepts such as whether the responsibilities of MIS personnel are clearly defined.

Assistant Manager Lin said, “This proposed framework seems suitable for my company,

but the premise must consider the company's structure. For example, the company did not do

well in distinguishing the responsibilities of IT personnel. The main reason is due to the lack

of manpower and information unit personnel. Therefore, some control items within this

proposed framework may be excluded. Nevertheless, the framework is still useful for my

company.”

The case company suggested that several control items be transformed to attainable

of 44

Accep

ted

Man

uscr

ipt

targets in the future.

The interviewees were requested to state their opinions regarding the appropriateness and

importance of the control items to understand the feasibility of the proposed framework. Table

7 provides a summary of the company’s evaluation of the control items constructed in this

study. The list shows that the MIS department is particularly focused on “system development

and control over program modifications” and “access control of programs and data,” further

proving that the list is applicable and can thus serve as future reference. With respect to the

dimension “system development and control over program modifications,” Assistant Manager

Lin said, “If the MIS department could manage developed or modified system programs

effectively, it could help improve the credibility of information and preciseness of data.”

Two interviewees presented their views on the dimension “access control of programs

and data.”

Director Chen said, “Because of the critical nature of the data and program within the

company, appropriate control strategies and controls should be set for IT systems through

access control policies. Only authorized users should be provided access to information

system assets.”

Assistant Manager Lin said, “The current system login in the company is appropriately

controlled by access control procedures such as passwords. This form of logical access

control over information is primarily required within the company to protect information

against acts such as unauthorized creation and modification as well as inadvertent errors.”

With respect to the audit of control items, auditors believe that in principle, general audits

should be conducted annually. However, several dimensions such as “access control of

programs and data” require timely system auditing procedures. Jointly auditing these

dimensions and those for the eight-cycle operations is sometimes necessary. Auditing in such

situations is conducted not only annually but also rather promptly in conjunction with other

procedures. External auditors believe that the current self-control mechanisms of the

company’s internal IT department involve two dimensions (i.e., “system development and

control over program modifications” and “access control of programs and data”), which

of 44

Accep

ted

Man

uscr

ipt

should be audited internally at least on a quarterly basis. As for the other dimensions, auditing

may be conducted every semester depending on the impact on the company processes.

The interviewees in the case study agreed that the constructed control items could

effectively assist the company in the audit and control of its ERP system.

Director Chen said, “This proposed framework is great and comprehensive. A few

control items are not available in the company at the moment, and this framework can be

utilized to adjust the present version of the company.”

-----------------------------------------------

Insert Table 7 here

-----------------------------------------------

(5) Discussion of Findings

As per earlier discussion, several findings are rather interesting. In general, internal

control framework for ERP existed in this case company could help related personnel to

perform an effective management and track the outcomes of IT control. This proposed

framework is relatively rigorous, complete and more easily acceptable logic-wise. Although

some control items are not suitable in the case company, this proposed framework can be used

repeatedly to adjust/improve the present version.

According to the results of case study, IT general control has reasonably been

emphasized since it supports the resulting application processing. However, different

industries and company size may provide different perspectives about determining the priority

of control items. For instance, small-sized companies often use Office software package to

handle business processing, and in this case, some of control items within this proposed

framework may need to be amended. Nonetheless, this proposed framework still can be

employed to greatly assist the entity to execute IT control and perform IT governance in the

case company.

6. Conclusions

Given that the ERP system is widely utilized in many organizations, relevant information

on security and internal controls must be continuously prioritized. Stakeholders wish to feel

of 44

Accep

ted

Man

uscr

ipt

confident that internal control within the organization is executed effectively to reduce the

possibility of business failure or fraudulent financial reporting [38]. However, improper

management of control procedures in the computer environment of a company may result in

significant financial reporting errors and financial losses for the same company. Thus, this

study developed an ERP internal control framework to assist stakeholders in verifying the

effectiveness of their respective companies’ internal control mechanisms.

Literature related to IT controls for the internal use of companies, various information

security organization bylaws, and academic literature were reviewed. Open, axial, and

selective coding were performed to finalize the 51 key items associated with ERP internal

control. Questionnaires were administered to confirm whether the abovementioned items are

suitable for and essential to the ERP system. Out of the 51 control items, only 37 were

utilized in the preliminary model. A case study was then conducted to verify the feasibility of

the proposed framework.

Our findings have provided some implications on/to future research. The internal control

matrix could be regarded as a common method to represent internal controls for specific

business processes within the SOX audit environment, which includes the internal control

objectives [24]. Only a few studies have developed a structured, systematic approach that

stakeholders can utilize. The proposed framework was derived from several rigorous methods

and contained necessary control dimensions and items that can be utilized for ERP control

and improvement of IT governance. Comparing with the previous studies on internal control

frameworks including Jo et al. [34] and Lin et al. [40], case study approach has been

recommended for this stream of studies and this is simply because of the need for detailed and

contextual information from the entity stakeholders. Further, more extant researches utilized

experts from CPA firms as a research subject, this study yet recruited several participants

from the case company to disseminate their thoughts. Since this study embraced the

application controls to broaden the IT control domain, the obtained outcome may complete

Huang’s [29] work because of its only focus is placed on the IT general controls.

A previous study indicated that existing internal control frameworks do not consider

of 44

Accep

ted

Man

uscr

ipt

important control aspects such as the environment outside the organization [66]. The

dimension “control of outsourced operations” in the proposed framework strengthens the ERP

internal control points. A few empirical studies examined IT control weakness and IT

operation risk [5, 36, 39]. The study of Li et al. [39] provided empirical evidence regarding

IT-related material weakness based on internal and external governance. Further, Klamm and

Watson [36] examined IT material weakness based on the internal control-integrated

framework proposed by COSO. In summary, this proposed framework may be utilized to

assess ERP control.

The proposed framework can also be applied to the external auditing profession. External

auditors can communicate logically with their clients through this framework. The

responsibility of the certified public accountants in attesting to the effectiveness of their

clients’ internal control system has been clearly regulated. An auditor in an IT environment

must have a good understanding of internal control. If an auditor does not have a proper

understanding of such concept, auditing work may incur many uncertainties and risks.

From the perspective of a business entity, acquiring effective internal control is a

complex task. However, internal control can be facilitated and maintained if a proper

framework is adopted. The proposed framework is a supplement to the COSO framework [15]

and provides a comprehensive framework to facilitate the construction of detailed controls for

ERP systems. Among the 12 dimensions constructed in this study, only the dimension “access

control of program and data” was unanimously recognized by all interviewees as an important

criterion in information risk management. This finding is similar to that of Wallace et al. [73],

thereby proving that access control is the most common and prioritized control in practice.

When an entity establishes proper access control, the probability of an attacker obtaining

unauthorized system access decreases [59]. However, most of the items in the proposed

framework were regarded as moderately important. The listed company under study should

therefore exercise compliance, and its stakeholders should assume more responsibility to

protect the information system. This result confirms the results of Wallace et al. [73].

With the proposed framework, which includes comprehensive control dimensions or

of 44

Accep

ted

Man

uscr

ipt

items, internal auditors and MIS department chiefs can verify the effectiveness of internal

control through a complete mechanism to comply with government regulations. In other

words, internal auditors and MIS department chiefs can develop their relationship and

communicate the effectiveness of internal control by referring to the proposed framework.

According to Wallace et al. [73], a good relationship between an organization’s internal

auditors and MIS department chiefs helps the organization comply with IT-related internal

control requirements.

Several control items are considered high-priority items. Perhaps stakeholders should

prioritize high-risk control points. This process not only enhances audit efficiency also easily

identifies the weakness of internal control. Companies must consider the limitations inherent

in their infrastructures in terms of internal control management to determine the most

important control points [58]. These recommended improvements can enable companies to

build robust auditing structures.

Small and medium-sized enterprises (SMEs) need to implement information systems in

their operations to cooperate with large firms. Most large firms request to review and audit

downstream SMEs to ensure system security. SMEs may therefore consider the proposed

framework and adjust several control items following their own characteristics to determine

their IT control weaknesses in advance.

The present study has limitations. Thirty relevant studies were selected and reviewed to

construct the ERP system internal control framework. This study did not prove that the coding

process reached saturation; other control items might have been missed. Furthermore, despite

recruiting 18 qualified experts to confirm the control items derived from the literature review,

other experts might have concluded otherwise. Another limitation of this study is external

validity. The explanatory power of this study may be limited because single case method is

adopted herein. This proposed framework with control items developed in this study is

generic in nature. In other words, it could be applied to the majority of entities regardless of

the size or industry. A few industries with a higher security consideration of IT environment

(i.e., banking sector) will be able to expand this framework and add other new control

of 44

Accep

ted

Man

uscr

ipt

dimensions and items to provide additional insights to this subject area.

Several future research avenues are discussed as follows. First, given the increasing

number of published studies on ERP internal control, follow-up research may analyze these

streamed studies to add control items and refine the proposed framework. Second, several

control items in the proposed framework may be extended to other systems, organizations

(i.e., government agencies), and industries. Future studies could examine the usefulness and

feasibility of the proposed framework.

of 44

Accep

ted

Man

uscr

ipt

References [1] American Institute of Certified Public Accountants (AICPA), Audit Risk and Materiality

in Considering an Audit, SAS No.94, AICPA, New York, 1983. [2] American Institute of Certified Public Accountants (AICPA), the Effect of Information

Technology on the Auditors’ Consideration of Internal Control in a Financial Statement Audit. SAS No. 94. AICPA, New York, 2001.

[3] H. Ashbaugh-Skaife, The effect of SOX internal control deficiencies on firm risk and cost of equity, Journal of Accounting Research 47(1), 2009, pp. 1–43.

[4] J. C. Bedard, L. E. Graham, The effects of decision aid orientation on risk factor identification and audit test planning, Auditing 21 (2), 2002, pp. 39-65.

[5] M. Benaroch, A. Chernobai, J. Goldstein, An internal control perspective on the market value consequences of IT operational risk events. International Journal of Accounting Information Systems 13 (4), 2012, pp. 357–381.

[6] J. Brazel, L. Dang, The effect of ERP system implementations on the management of earnings and earnings release dates, Journal of Information Systems 22 (2), 2008, pp. 1–21.

[7] British Standards Institution (BSI), Information Security Management- Part 2: Specification for Information Security Management Systems, British Standards Institution, London, 2002.

[8] W. Brown, F. Nasuti, Sarbanes-Oxley and enterprise security: IT governance—What it takes to get the job done, Security Management Practices 14(5), 2002, pp. 15–28.

[9] L. Calabro, Looking under the hood, CFO, 20 (6), 2004, pp. 97-98. [10] V. Cerullo, M. J. Cerullo, Business continuity planning: A comprehensive approach,

Information Systems Management 21(3), 2004, pp.70-78. [11] S. I. Chang, G. G. Gable, A comparative analysis of major ERP lifecycle

implementation, management and support issues in Queensland government, Journal of Global Information Management 10 (3), 2002, pp. 36-54.

[12] J. Chau, Application security – it all starts from here, Computer Fraud & Security 2006 (6), 2006, pp. 7-9.

[13] M. Coe, Trust services: A better way to evaluate IT controls, Journal of Accountancy 199 (3), 2005, pp. 69-75.

[14] J. L. Colbert, P. L. Bowen. A comparison of internal controls: COBIT, SAC, COSO, and SAS 55/78, IS Audit and Control Journal 4, 1996, pp. 26-35.

[15] Committee of Sponsoring Organizations of the Treadway Commission (COSO), Internal Control - Integrated Framework. AICPA, New York, 1992.

[16] A. Daveiga, J. H. P. Eloff, An information security governance framework, Information Systems Management 24 (4), 2007, pp. 361-372.

[17] G. Dhillon, Principles of Information System Security: Text and cases, John Wiley and Sons, New Jersey, 2007.

[18] D. Durfee, The 411 on 404: Reporting a material weakness in controls can cost shareholders millions and some CFOs their jobs. CFO Magazine, 2005.

[19] J. H. P. Eloff, M. M. Eloff, Information security architecture, Computer Fraud & Security 2005 (11), 2005, pp.10-16.

[20] Ernst & Young, Preparing for internal control reporting: A guide for management’s assessment under section 404 of the Sarbanes-Oxley Act, Ernst, Young LLP, 2002.

[21] S. Flowerday, R. Von Solms, Continuous auditing: Verifying information integrity and providing assurances for financial reports, Computer Fraud & Security 2005 (7), 2005, pp. 12-16.

[22] S. Flowerday, R. Von Solms, Real-time information integrity= system integrity+ data integrity+ continuous assurance, Computers and Security 24 (8), 2005, pp. 604-613.

[23] C. Fox, P. C. Zonneveld, IT Control Objectives for Sarbanes-Oxley: The Importance of IT in the Design, Implementation and Sustainability of Internal Control over Disclosure and Financial Reporting, IT Governance Institute, Illinois, 2003.

of 44

Accep

ted

Man

uscr

ipt

[24] U. J., Jr. Gelinas, R. B. Dull, Accounting Information Systems, 7th edition, Mason, OH: Thomson South-Western, 2008.

[25] S. Glover, D. Prawitt, M. Rommy. Implementing ERP, Internal Auditor 56 (1), 1999, pp. 40-47.

[26] S. Goel, H.A. Shawky, Estimating the market impact of security breach announcements on firm values, Information & Management 46 (7), 2009, pp. 404-410.

[27] L. A. Gordon, M. P. Leob, W. Lucyshyn, R. Richardson, CSI/FBI Computer Crime and Security Survey. Computer Security Institute, Available at: www.gocsi.com, 2005.

[28] M. Gorge, USB and other portable storage device usage: Be aware of the risks to your corporate data in order to take pre-emptive and/or corrective action, Computer Fraud & Security 2005 (8), 2005, pp.15-17.

[29] S. M. Huang, W. H. Hung, D. C. Yen, I. C. Chang, D. Chiang, Building the evaluation model of the IT general control for CPAs under enterprise risk management, Decision Support Systems 50 (4), 2011, pp. 692-701.

[30] P. Hunter, Card systems: Four million Hack – under the spotlight, Computer Fraud & Security 2005 (11), 2005, pp. 8-9.

[31] J. E. Hunton, A. M. Wright, S. Wright, Are financial auditors overconfident in their ability to assess risks associated with enterprise resource planning systems?, Journal of Information Systems 18 (2), 2004, pp.7-28.

[32] IT Governance Institute (ITGI). Board briefing on IT governance. Available at: http:// www.itgi.org. 2003.

[33] IT Governance Institute (ITGI), Control Objectives, Management Guidelines, Maturity Models in CobiT 4.0., IT Governance Institute, Illinois, 2005.

[34] Y. Jo, J. Lee, J. Kim, Influential factors for COBIT adoption intention: An empirical analysis. International Journal of Contents 6(4), 2010, pp.79-89.

[35] A. Jones, The convergence of physical and electronic security, Computer Fraud & Security 2006 (3), 2006, pp.12-14.

[36] B.K. Klamm, M.W. Watson, SOX 404 reported internal control weakness: A test of COSO framework components and information technology, Journal of Information Systems 23(2), 2009, pp.1-23.

[37] C. H. Lawshe, A quantitative approach to content validity, Personnel Psychology 28 (4), 1975, pp. 563-575.

[38] C. M. Lehmann, Internal controls: A compendium of short cases, Issues in Accounting Education 25 (4), 2010, pp. 741-754.

[39] C. Li, J. H. Lim, Q. Wang, Internal and external influences on IT control governance, International Journal of Accounting Information Systems 8 (4), 2007, pp.225-239.

[40] F. Lin, L. Guan, W. Fang, Critical factors affecting the evaluation of information control systems with the COBIT framework: A study of CPA firms in Taiwan. Emerging Markets Finance & Trade 46(1), 2010, pp.42-55.

[41] A. Mancuso, Auditing standard board issues SAS No. 80, The CPA Journal 66, 1997, pp. 74-74.

[42] Market Intelligence and Consulting Institute (MIC), Analysis of IT Applications for Large Companies in Taiwan, Institute for Information Industry, Taipei, 2009.

[43] N. Marks, The more things change, Internal Auditor 61 (4), 2004, pp.60-64. [44] T. J. Mock, L. Sun, R. P. Srivastava, M. Vasarhelyi, An evidential reasoning approach to

Sarbanes-Oxley mandated internal control risk assessment. International Journal of Accounting Information Systems 10(2), 2009, pp. 65-78.

[45] J. J. Morris, The impact of enterprise resource planning (ERP) systems on the effectiveness of internal controls over financial reporting, Journal of Information Systems 25 (1), 2011, pp.129-157.

[46] E. Myler, G. Broadbent, ISO 17799: Standard for security. Information Management Journal 40 (6), 2006, pp. 43-52.

[47] C. S. Norman, M. D. Payne, V. P. Vendrzyk, Assessing information technology general control risk: An instructional case, Issues in Accounting Education 24 (1), 2009, pp. 63-76.

of 44

Accep

ted

Man

uscr

ipt

[48] J. D. Novak, D. B. Gowin, Learning how to learn. Cambridge University Press, NY, 1989.

[49] J. B. O’Donnell, Y. Rechtman, Navigating the standards for information technology controls, The CPA Journal 75 (7), 2005, pp. 64-69.

[50] D. O’Leary, Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic Commerce, and Risk, Cambridge University Press, Cambridge, 2000.

[51] P. Proctor, J. Viganly, The security implications of Sarbanes-Oxley, Symantec Enterprise Solutions Webcast, Available at: www.symantec.com/press/2004/ n040218c.html, 2004.

[52] Public Company Accounting Oversight Board (PCAOB), An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statement, Auditing Standard No. 2, PCAOB, Washington, 2004.

[53] M. Ramos, Evaluate the control environment, Journal of Accountancy 197 (5), 2004, pp. 75-78.

[54] M. B. Romney, P. J. Steinbart, Accounting Information Systems, Pearson, Upper Saddle River, New Jersey, 2009.

[55] R. Saint-Germain, Information security management best practice based on ISO/IEC 17799, Information Management Journal 39 (4), 2005, pp. 60-66.

[56] W. Sally, M. W. Arnold, Information system assurance for enterprise resource planning system: Unique risk considerations, Journal of Information Systems 16 (1), 2002, pp. 99-113.

[57] W. She, B. Thurasingham, Security for enterprise resource planning systems, Information Systems Security 16 (3), 2007, pp. 152-163.

[58] M. Siponen, R.Willison, Information security management standards: Problems and solutions, Information & Management 46 (5), 2009, pp. 267-270.

[59] P. J. Steinbart, R. L. Raschke, G. Gal, W. N. Dilla, The relationship between internal audit and information security: An exploratory investigation, International Journal of Accounting Information Systems 13(3), 2012, pp. 228-243.

[60] P. Stephenson, Incident analysis and recovery, Computer Fraud & Security 2005 (3), 2005, pp. 17-19.

[61] P. Stephenson, Ensuring consistent security implementation within a distributed and federated environment, Computer Fraud & Security 2006 (11), 2006, pp. 12-14.

[62] A. Stewart, On Risk: Perception and direction, Computers and Security 23 (5), 2004, pp. 362-370.

[63] M. D. Stoel, W. A. Muhanna, IT internal control weaknesses and firm performance: An organizational liability lens, International Journal of Accounting Information Systems 12 (4), 2011, pp.208-304.

[64] A. Strauss, Qualitative Analysis for Social Scientists, Cambridge University Press, Cambridge, 1987.

[65] K. L. Thomson, R. Von Solms, Towards an information security competence maturity model, Computer Fraud & Security 2006 (5), 2006, pp. 11-15.

[66] B. Tuttle, S. D. Vandervelde, An empirical examination of CobiT as an internal control framework for information technology, International Journal of Accounting Information Systems 8 (4), 2007, pp. 240-263.

[67] S. Tyson, L. Bean, System access hotspots: Are auditors ignoring danger, Journal of Corporation Accounting and Finance 16 (4), 2005, pp. 3-9.

[68] United States Code, Public Printing and Documents: Definitions. Title 44, Section 3552, United States Code, Washington, D.C., 2008.

[69] R. Van De Riet, W. Janssen, P. De Gruijter, Security moving from database systems, Database and Expert System Applications Proceedings, 1998.

[70] A. Vance, M. Siponen, S. Pahnila, Motivating IS security compliance: Insights from habit and protection motivation theory, Information & Management 49 (3-4), 2012, pp. 190-198.

[71] L. Volonino, G. H. Gessner, Holistic compliance with Sarbanes- Oxley, Communication of AIS 14 (1), 2004, pp. 219-233.

of 44

Accep

ted

Man

uscr

ipt

[72] S. H. Von Solms, Information security governance – compliance management vs. operational management, Computers and Security 24 (6), 2005, pp. 443-447.

[73] L. Wallace, H. Lin, M. A. Cefaratti, Information security and Sarbanes-Oxley compliance: An exploratory study, Journal of Information Systems 25 (1), 2011, pp. 185-211.

[74] L. Wallace, M. Keil, A. Rai, Understanding software project risk: A cluster analysis, Information & Management 42 (1), 2004, pp. 115-125.

[75] L. M. Walters, A draft of an information systems security and control course, Journal of Information Systems 21 (1), 2007, pp. 123-148.

[76] C. L. Wilkin, R. H. Chenhall, A review of IT governance: A taxonomy to inform accounting information systems, Journal of Information Systems 24 (2), 2010, pp. 107-146.

[77] R. Williams, Performing a successful UNIX audit, Computer Fraud & Security 2003 (8), 2003, pp. 11-12.

[78] P. Wilson, Risk control: A technical view, Computer Fraud & Security 2005 (5), 2005, pp. 8-11.

[79] R. K. Yin, Case study research- Design and methods, Sage, California, 2009.

of 44

Accep

ted

Man

uscr

ipt

Table 1. Related literature on IT internal control No. Author Literature Title Literature Source 1 A company Computerized Process: Internal Control A company 2 B company Computerized Process: Operation B company 3 C company Computerized Process: Internal Control C company 4 British Standards Institution

[7] Information Security Management Part 2: Specification for Information Security Management Systems; British Standards Institution.

British Standards Institution (BSI)

5 IT Governance Institute [33] Control Objectives for Information and Related Technology (COBIT 4.0) Information Systems Audit and Control Association 6 Cerullo and Cerullo [10] Business Continuity Planning: A Comprehensive Approach Information Systems Management 7 Chau [12] Application Security: It All Starts from Here Computer Fraud and Security 8 Coe [13] Trust Services: A Better Way to Evaluate IT Controls Journal of Accountancy 9 Daveiga and Eloff [16] An Information Security Governance Framework Information Systems Management 10 Eloff and Eloff [19] Information Security Architecture Computer Fraud and Security 11 Flowerday and Von Solms

[21] Continuous Auditing: Verifying Information Integrity and Providing Assurances for Financial Reports Computer Fraud and Security

12 Gorge [28] USB and Other Portable Storage Device Usage: Be Aware of the Risks to Your Corporate Data Take Pre-emptive and/or Corrective Action

Computer Fraud and Security

13 Hunter [30] Card Systems: Four Million Hacked – Under the Spotlight Computer Fraud and Security 14 Jones [35] The Convergence of Physical and Electronic Security Computer Fraud and Security 15 Marks [43] The More Things Change… Internal Auditor 16 Myler and Broadbent [46] ISO 17799: Standard for Security Information Management Journal 17 Saint-Germain [55] Information Security Management Best Practice Based on ISO/IEC 17799 Information Management Journal

18 Stephenson [60] Incident Analysis and Recovery Computer Fraud and Security 19 Stephenson [61] Ensuring Consistent Security Implementation within a Distributed and Federated Environment Computer Fraud and Security 20 Stewart [62] On risk: perception and direction Computers and Security 21 Thomson and Von Solms

[65] Toward an Information Security Competence Maturity Model Computer Fraud and Security

22 Tyson and Bean [67] System Access Hotspots: Are Auditors Ignoring Danger? Journal of Corporation Accounting & Finance 23 Volonino and Gessner [71] Holistic Compliance with Sarbanes: Oxley Communication of AIS 24 Von Solms [72] Information Security Governance: Compliance Management vs. Operational Management Computers and Security 25 Wallace et al. [74] Understanding software project risk: a cluster analysis Information and Management 26 Williams [77] Performing a Successful Unix Audit Computer Fraud & Security 27 Flowerday and Von Solms

[22] Real Time Information Integrity = System Integrity + Data Integrity + Continuous Assurances

Computers and Security

28 Walters [75] A Draft of an Information System Security and Control Course Journal of Information Systems 29 She and Thuraisingham [57] Security for Enterprise Resource Planning Systems Information System Security 30 Wilson [78] Risk Control: A Technical View Computer Fraud and Security Nos. 1 to 3 are classified as A (IT control for the internal use of companies)

of 44

Accep

ted

Man

uscr

ipt

Nos. 4 to 5 are classified as B (information security organization bylaws) Nos. 6 to 30 are classified as C (academic literature)

of 44

Accep

ted

Man

uscr

ipt

Table 2. Results of axial coding Category Domain Codes (From open coding) References

Whether clear definitions of the responsibilities of maintenance personnel in the MIS department exist

A1, A30, A121, A193, B12, B32, B112, C17, C33, C49, C81, C94, C151, C179

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], Eloff and Eloff [19], IT Governance Institute [33], Jones [35], She and Thuraisingham [57], Stephenson [61], Volonino and Gessner [71], Von Solms [72], Walters [75]

Whether application procedures exist for the system accounts (authorization)

A43, A45, A124, A152, A155, A209, A224, A232, A236, B65, C42, C72, C106, C109, C194, C196

A company, B company, C company, British Standards Institution [7], Cerullo and Cerullo [10], Gorge [28], Stephenson [60], Volonino and Gessner [71], Walters [75]

Whether system accounts (authorization) should be approved by related unit heads

A47, A210, A223, A237, C18, C48, C147 A company, C company, Cerullo and Cerullo [10], Jones [35], Von Solms [72]

Whether accounts are cancelled after employees leave

A46, A63, A153, A195, A225, B66, B117, C150, C197

A company, B company, C company, British Standards Institution [7], IT Governance Institute [33], Jones [35], Walters [75]

Whether accounts are modified simultaneously when employees change job responsibilities

A64, A196, A226, A228, B118, C47 A company, B company, C company, Cerullo and Cerullo [10], IT Governance Institute [33]

Whether user authorization is constantly reviewed

A62, A102, A126, A156, B69, B113, C34, C149, C199

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], IT Governance Institute [33], Jones [35], Walters [75]

Definition of functions and responsibilities of data processing department

Whether a dedicated team is responsible for the maintenance of the hardware and software of the system

A51, A73, A97, A107, A125, A200 A company, B company, C company

Whether application procedures exist for requests to modify system programs

A4, A23, A71, A127, A142, A212, B98 A company, B company, C company, British Standards Institution [7]

Whether modification specifications are confirmed by the MIS department and the department that submits such requests

A5, A8, A22, A24, A140, A143, B120, B127, B132, B142, C13 A company, B company, IT Governance Institute [33], Von Solms [72]

Whether system program modification documents are approved by related unit heads

A7, A21, A213, C50, C176 A company, C company, Marks [43], Walters [75]

Whether SA and SD program documents relevant to the modifications are available

A16, A42, A129, A137, B60, B64, B99, B123, B133, B143

A company, B company, British Standards Institution [7], IT Governance Institute [33]

Whether independent environments exist for development A15, A141, A217, C121, C180 A company, B company, C company, Chau [12], Walters [75]

Whether independent environments exist for tests B35, B40, B58, B93, B147, C181 British Standards Institution [7], IT Governance Institute [33], Walters [75]

System development and control over program modifications

Whether relevant test documents and records on program developments exist

A10, A18, A26, A38, A128, A135, A138, A216, A221, B41, B61, B92, B124, B134, B144, C22, C122, C182, C209

A company, B company, C company, British Standards Institution [7], Chau [12], Flowerday and Von Solms [22], IT Governance Institute [33], Stewart [62], Walters [75]

of 44

Accep

ted

Man

uscr

ipt

Category Domain Codes (From open coding) References

Whether updated (newly added) programs are assessed by users

A13, A14, A25, A134, A139, A218, B59, B97, B100, B122, B130, B136, B146, C21, C123, C130, C186

A company, B company, C company, British Standards Institution [7], Chau [12], IT Governance Institute [33], Stewart [62], Walters [75]

Whether relevant control measures exist for changes in system flows A29, A122, C58 A company, B company, British Standards Institution [7]

Whether coding management is executed on the documents in relation to program modifications (updates)

A6, A32, A144, A214 A company, B company, C company

Whether documents are updated and modified by version after the modifications (additions) of programs

A11, A20, A27, A31, A36, A41, A53, A54, A132, A145, A190, A219, A222, B84, B101, B126, B137, B145, C23, C187

A company, B company, C company. British Standards Institution [7], Flowerday and Von Solms [22], IT Governance Institute [33], She and Thuraisingham [57], Stewart [62], Walters [75]

Whether review documents are improved after the programs have been developed

A17, B83, B88, B125, C105, C124, C183 A company, British Standards Institution [7], Chau [12], IT Governance Institute [33], Stephenson [61], Walters [75]

Whether dedicated personnel safeguard the documents in relation to the systems

A28, A33, A34, A35, A39, A149, A215, A220, B24, B173, C54

A company, B company, C company, British Standards Institution [7], Coe [13], IT Governance Institute [33]

Control over the compilation of system documents

Whether only certain personnel can access (modify) the documents in relation to the system programs or the original library

A37, A40, A194, B94, B164, C55, C192, C210

A company, B company, British Standards Institution [7], Coe [13], IT Governance Institute [33], Walters [75]

Whether authority controls exist

A61, A83, A159, A165, B33, B74, B76, B91, B155, B174, C26, C31, C39, C43, C56, C69, C77, C95, C108, C125, C131, C148, C195

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], Chau [12], Coe [13], Daveiga and Eloff [16], Eloff and Eloff [19], IT Governance Institute [33], Jones [35], She and Thuraisingham [57], Stephenson [60], Stephenson [61], Volonino and Gessner [71], Walters [75]

Whether password controls exist B68, B70, B78, B89, C64, C100, C136, C138, C144, C145, C198, C202, C225

British Standards Institution [7], Daveiga and Eloff [16], Flowerday and Von Solms [21], Myler and Broadbent [46], Stephenson [61], Walters [75], Williams [77]

Whether different access authorizations exist pursuant to the nature of users

A49, A55, A207, A227, A231, B52, B54, B63, B67, B70, B75, B79, B156, B169, C2, C5, C27, C46, C71, C146, C203, C224, C226

A company, C company, British Standards Institution [7], Cerullo and Cerullo [10], Flowerday and Von Solms [21], Gorge [28], IT Governance Institute [33], Myler and Broadbent [46], Saint-Germain [55], Von Solms [72], Walters [75]

Whether the transfer of external data into the system has undergone verification by relevant programs

A56, B55, C193 A company, British Standards Institution [7], Walters [75]

Whether control over remote access to the system mainframes exists

A257, B72, B175, C25, C29, C96, C134, C135, C137, C200, C201

C company, British Standards Institution [7], Cerullo and Cerullo [10], IT Governance Institute [33], Stewart [62], Stephenson [61], Walters [75], Williams [77]

Access control of programs and data

Whether dedicated personnel are responsible for the maintenance of the system databases

A2, A50, A130, A151, A154, A157, A234, C3, C44, C65, C66, C73

A company, B company, C company, Cerullo and Cerullo [10], Daveiga and Eloff [16], Gorge [28], Von Solms [72]

of 44

Accep

ted

Man

uscr

ipt

Category Domain Codes (From open coding) References Whether application files exist for system data filing A60 A company

Whether original documents exist for input data A65, A158, A205, C36 A company, B company, C company, Cerullo and Cerullo [10]

Whether numbering of the documents is generated by the system

A67, A208 A company, C company

Whether verification procedures exist for the data input/output interface

A66, A77, A146, A162, A206, A235, B53, B85, B86, B87, B135, B165, C103, C126, C207, C227

A company, B company, C company, British Standards Institution [7], Chau [12], IT Governance Institute [33], Myler and Broadbent [46], Stephenson [61], Walters [75]

Whether appropriate control measures are present for output confidential data

A68, A147, A160, A163, B49, B51, B62, B90, B166, C37, C53, C70, C104, C229

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], Coe [13], Gorge [28], IT Governance Institute [33], Myler and Broadbent [46], Stephenson [61]

Control of data inputs and outputs

Whether records exist for any changes in data additions (modifications)

A48, A161, B77, B157, C80, C208 A company, B company, British Standards Institution [7], Eloff and Eloff [19], IT Governance Institute [33], Walters [75]

Whether relevant flows exist to manage the changes in data modification

A3, A52, A59, A69, A70, A81, A166, A233, B34, C4, C127

A company, B company, C company, British Standards Institution [7], Chau [12], Von Solms [72]

Whether data are regularly backed up

A86, A101, A111, A112, A131, A164, A167, A178, A186, A244, A247, A251, B44, B81, B151, B167, C11, C92, C156, C189, C205, C228

A company, B company, C company, British Standards Institution [7], IT Governance Institute [33], Myler and Broadbent [46], Stephenson [60], Von Solms [72], Tyson and Bean [67], Walters [75]

Control of data processing

Whether backup data are supported by another location

A88, A168, A245, B152, B170, C93, C159

A company, B company, C company, IT Governance Institute [33], Stephenson [60], Tyson and Bean [67]

Whether information equipment is listed and managed

A95, A106, A148, A183, B4, B11, B28, C35, C84, C168

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], Eloff and Eloff [19], Walters [75]

Whether information equipment is protected with security measures

A57, A58, A90, A185, A204, A241, A256, A258, C24, C30, C32, C41, C57, C97, C188, C214

A company, B company, C company, Cerullo and Cerullo [10], Coe [13], Flowerday and Von Solms [22], Saint-Germain [55], Stephenson [61], Stewart [62], Walters [75]

Whether anti-virus measures are present B102, C7, C112, C116, C212 British Standards Institution [7], Hunter [30], Saint-Germain [55], Von Solms

[72]

Whether firewalls are present B48, B73, B159, C6, C67, C74, C78, C90, C99, C111, C213, C230

British Standards Institution [7], Daveiga and Eloff [16], Eloff and Eloff [19], Hunter [30], IT Governance Institute [33], Myler and Broadbent [46], Saint-Germain [55], Stephenson [60], Stephenson [61], Thomson and Von Solms [65], Von Solms [72]

Whether the system mainframe is placed in facility rooms B18, B20, C85, C132, C171, C221 British Standards Institution [7], Eloff and Eloff [19], Saint-Germain [55],

Williams [77], Walters [75]

Security control of files and equipment

Whether access control over facility rooms is present

A94, A150, A173, A184, A201, A230, B19, B21, B171, C86, C133, C154, C172, C223

A company, B company, C company, British Standards Institution [7], Eloff and Eloff [19], IT Governance Institute [33], Saint-Germain [55], Tyson and Bean [67], Walters [75], Williams [77]

of 44

Accep

ted

Man

uscr

ipt

Category Domain Codes (From open coding) References Whether fire, water, and temperature control facilities are present in facility rooms

A87, A91, A92, A93, A174, A175, A239, A246, C153, C155, C222 A company, B company, C company, Saint-Germain [55], Tyson and Bean [67]

Whether UPS facilities are present B22, B23, B172, C10, C152, C173 British Standards Institution [7], IT Governance Institute [33], Tyson and Bean [67], Von Solms [72], Walters [75]

Whether control procedures exist to destroy the backup data A169, A229, B26, B50, C175, C191 B company, C company, British Standards Institution [7], Walters [75]

Whether the “prevent abnormal invasion” measure exists

A44, A187, B43, B158, C28, C38, C91, C141, C215, C231

A company, B company, British Standards Institution [7], Cerullo and Cerullo [10], IT Governance Institute [33], Myler and Broadbent [46], Saint-Germain [55], Stephenson [60], Wilson [78]

Whether dedicated personnel responsible for the maintenance of software updates are present

A74, A80, A188, A238, B96, B139 A company, B company, C company, British Standards Institution [7], IT Governance Institute [33], Wallace et al. [74]

Whether regular inspections of hardware daily logs are conducted

A75, B39, B80, B141, C20, C101, C139, C140, C177, C190, C204, C232

A company, British Standards Institution [7], IT Governance Institute [33] , Myler and Broadbent [46], Stephenson [61], Von Solms [72], Wilson [78], Walters [75]

Whether the software and hardware are regularly maintained

A82, A98, A133, A171, A203, A242, A248, B38, B82, B109, B138, C9, C15, C60, C113, C174

A company, B company, C company, British Standards Institution [7], Coe [13] , Flowerday and Von Solms [22], IT Governance Institute [33], Hunter [30] Volonino and Gessner [71], Von Solms [72], Walters [75]

Whether records exist to note the maintenance of and changes in hardware

A76, A99, A172, A191, A202, A243, A249, B30, B42, B140

A company, B company, C company, British Standards Institution [7], IT Governance Institute [33]

Whether the system software/program update is approved by the MIS department chief

A136 B company

Whether records exist to note the maintenance of and changes in software

A100, B95, B148, C59, C102 A company, British Standards Institution [7], Coe [13], IT Governance Institute [33], Stephenson [61]

Control over the procurement, use, and maintenance of hardware and system software

Whether the system software is legal A121, A189, A211, A250, A259, B108, B129, B161, C8, C16

A company, B company, C company, British Standards Institution [7], IT Governance Institute [33], Von Solms [72]

Whether regular tests are conducted for system recovery procedures in the face of disaster

A89, A113, A116, A180, A253, B105, B106, B153, B168, C12, C88, C157

A company, B company, C company, British Standards Institution [7], IT Governance Institute [33], Stephenson [60], Tyson and Bean [67], Von Solms [72]

Whether procedures exist to report disasters

A78, A108, A114, A115, A177, A192, A252, B15, B16, B17, B31, B46, B104, B154, B162, C40, C61, C87, C114, C158, C170, C219

A company, B company, C company, British Standards Institution [7], Cerullo and Cerullo [10], Coe [13], Hunter [30], IT Governance Institute [33], Saint-Germain [55], She and Thuraisingham [57], Stephenson [60], Tyson and Bean [67], Walters [75]

System recovery plans/systems and control of testing programs

Whether relevant maintenance records and documents exist in case of abnormal situations

A79, A109, A179, B45, B47, B107, B163, C89, C117, C178, C206

A company, B company, British Standards Institution [7], IT Governance Institute [33], Hunter [30], Stephenson [60], Walters [75]

Control over the processes of information

Whether dedicated personnel responsible for reporting procedures are present

A118, A119, A197, A company, B company

of 44

Accep

ted

Man

uscr

ipt

Category Domain Codes (From open coding) References Whether the reports are pursuant to the regulations

A117, A120, A198, A261, A262, B6, C163

A company, B company, C company, British Standards Institution [7], Walters [75]

disclosure on the websites assigned Whether backups of the reporting

data exist A199 B company

Whether system security planning is present

A123, A181, A255, B2, B5, B7, B29, B57, B110, B114, B131, C1, C52, C76, C79, C82, C98, C115, C120, C142, C160, C216, C218

B company, C company, British Standards Institution [7], Coe [13], Eloff and Eloff [19], Hunter [30], IT Governance Institute [33], Saint-Germain [55], Stephenson [61], Thomson and Von Solms [65], Von Solms [72], Wilson [78], Walters [75]

Whether dedicated personnel responsible for the regular audits on information security exist

B3, B111, B115, B176, C19, C45, C107, C119, C143, C162, C164, C217

British Standards Institution [7], Cerullo and Cerullo [10], Hunter [30], IT Governance Institute [33], Saint-Germain [55], Stephenson [60], Von Solms [72], Walters [75], Wilson [78]

Independent information audit units

Whether promotions and training programs targeted at internal staff on information security exist

A85, A182, A254, A260, B1, B13, B14, B27, B56, B116, B160, C14, C68, C75, C83, C110, C118, C161, C169, C220

A company, B company, C company, British Standards Institution [7], Daveiga and Eloff [16], Eloff and Eloff [19], Hunter [30], IT Governance Institute [33], Stephenson [60], Thomson and Von Solms [65], Von Solms [72], Walters [75], Saint-Germain [55]

Whether control procedures on hardware outsourcing exist

A96, A103, A105, A110, A170, A240, B10, B25, B37, C63 A company, B company, C company, British Standards Institution [7], Coe [13]

Whether evaluations of system outsourcing are conducted

B8, B119, B121, B150, C128, C165, C184

British Standards Institution [7], Chau [12], IT Governance Institute [33], Walters [75]

Whether the contracts are signed for system outsourcing B9, B36, B149, C129, C166, C177, C185 British Standards Institution [7], Chau [12], IT Governance Institute [33], Walters

[75]

Control of outsourced operations

Whether relevant control procedures regarding system outsourcing exist

A9, A12, A19, A72, A84, A104, A176, B103, B128, C51, C62, C211

A company, B company, British Standards Institution [7], Coe [13], IT Governance Institute [33], Marks [43], Walters [75]

of 44

Accep

ted

Man

uscr

ipt

Table 3. Backgrounds of participating experts

Group Type No. of people Positions

Average years of service

Senior Auditors * 4 Audit 6 Audit Specialists * 2 14

Manager, MIS * 1 Assistant Manager, MIS * 3

Experts within companies IT 5

Deputy Project Manager, MIS * 1 11

Computer Audit, Manager * 1 Computer Audit, Assistant Manager * 1 Computer Audit, Assistant VP * 1 Audit, Manager * 1

Professional firms 5

Audit, Director * 1

6 Experts outside companies

ERP consultants 2 Consultants * 2 7

of 44

Accep

ted

Man

uscr

ipt

Table 4. Questionnaire analysis Types Groups

Dimension No. Control items

CVR, CPA firm

CVR, MIS

CVR, Audit

CVR, ERP

consultant

CVR, all

experts

Screen results

CVR, external experts

CVR, internal experts

Perception difference between groups

1 Whether clear definitions of the responsibilities of maintenance personnel in the MIS department exist 1.00 0.60 1.00 1.00 0.89 Yes 1.00 0.82 No

2 Whether application procedures for the system accounts (authorization) exist 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No

3 Whether accounts are cancelled after employees leave 0.60 0.60 1.00 1.00 0.78 Yes 0.71 0.82 No 4 Whether user authorization is constantly reviewed 1.00 0.20 1.00 0.00 0.67 Yes 0.71 0.64 No

Definition of functions and responsibilities of

data processing department

5 Whether a dedicated team responsible for the maintenance of the hardware and software of the system exists -0.20 1.00 0.67 1.00 0.56 No 0.14 0.82 Yes

1 Whether application procedures are present for requests to modify system programs 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No

2 Whether modification specifications are confirmed by the MIS department and the department that submits such requests 1.00 1.00 0.67 1.00 0.89 Yes 1.00 0.82 No

3 Whether SA and SD program documents relevant to the modifications exist 0.60 1.00 1.00 0.00 0.78 Yes 0.43 1.00 Yes

4 Whether independent environments for development and tests exist 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No

5 Whether relevant test documents and records on program developments are present 0.20 0.60 0.67 0.00 0.44 No 0.14 0.64 Yes

6 Whether updated (newly added) programs are assessed by users 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No

System development and control over

program modifications

7 Whether relevant control measures for changes in system flows are present 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

1 Whether coding management is executed on the documents in relation to program modifications (updates) 0.60 0.60 0.00 0.00 0.33 No 0.43 0.27 No

2 Whether documents are updated and modified by version after the modifications (additions) of programs 1.00 1.00 1.00 0.00 0.89 Yes 0.71 1.00 No

3 Whether dedicated personnel safeguarding the documents in relation to the systems are present -0.20 1.00 0.67 -1.00 0.33 No -0.43 0.82 Yes

Control over the compilation of system

documents

4 Whether only certain personnel can access (modify) the documents in relation to the system programs or the original library 0.20 0.60 1.00 0.00 0.56 No 0.14 0.82 Yes

1 Whether password controls exist 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No

2 Whether different access authorizations pursuant to the nature of users exist 1.00 1.00 1.00 1.00 1.00 Yes 1.00 1.00 No


3 Whether the transfer of external data into the system has undergone verification by relevant programs 1.00 1.00 1.00 0.00 0.89 Yes 0.71 1.00 No

of 44

Accep

ted

Man

uscr

ipt

Types Groups


CVR, CPA firm

CVR, MIS

CVR, Audit

CVR, ERP

consultant

CVR, all

experts

Screen results




4 Whether control over the remote access to the system mainframes exists 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

5 Whether dedicated personnel responsible for the maintenance of the system databases are present 1.00 1.00 0.67 1.00 0.89 Yes 1.00 0.82 No

1 Whether original documents for input data exist 1.00 0.60 1.00 0.00 0.78 Yes 0.71 0.82 No

2 Whether numbering of the documents generated by the system is present 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

3 Whether verification procedures for the data input/output interface exist 0.60 0.60 1.00 0.00 0.67 Yes 0.43 0.82 Yes

4 Whether appropriate control measures for confidential output data exist -0.20 1.00 1.00 1.00 0.67 Yes 0.14 1.00 Yes


5 Whether records on any changes in data additions (modifications) exist 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

1 Whether relevant flows exist to manage the changes in data modification 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

2 Whether data are regularly backed up 0.20 1.00 1.00 1.00 0.78 Yes 0.43 1.00 Yes Control of data

processing 3 Whether backup data are supported by another location 0.20 0.60 1.00 1.00 0.67 Yes 0.43 0.82 Yes 1 Whether information equipment is listed and managed -0.60 0.60 0.67 0.00 0.22 No -0.43 0.64 Yes 2 Whether information equipment is protected with security measures 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No 3 Whether access control over facility rooms exists 0.20 1.00 1.00 1.00 0.78 Yes 0.43 1.00 Yes 4 Whether facility rooms are protected with security measures -0.20 1.00 1.00 1.00 0.67 Yes 0.14 1.00 Yes


5 Whether control procedures exist to destroy backup data -0.20 0.60 1.00 1.00 0.56 Yes 0.14 0.82 Yes

1 Whether dedicated personnel responsible for the maintenance of software updates are present 0.20 1.00 0.33 0.00 0.44 No 0.14 0.64 Yes

2 Whether regular inspections of hardware daily logs are conducted -0.20 1.00 0.67 1.00 0.56 No 0.14 0.82 Yes 3 Whether the software and hardware are regularly maintained -0.20 1.00 0.33 1.00 0.44 No 0.14 0.64 Yes

4 Whether records to note the maintenance of and changes in hardware and software are present -0.60 1.00 0.67 1.00 0.44 No -0.14 0.82 Yes

Control over the procurement, use, and

maintenance of hardware and system

software 5 Whether the system software is legal 0.20 1.00 1.00 1.00 0.78 Yes 0.43 1.00 Yes

1 Whether regular tests on system recovery procedures in the face of disaster are conducted 0.20 1.00 0.67 1.00 0.67 Yes 0.43 0.82 Yes

2 Whether procedures to report disasters exist -0.60 1.00 0.67 1.00 0.44 No -0.14 0.82 Yes

System recovery plans/systems and control of testing

programs 3 Whether relevant maintenance records and documents exist in case of abnormal situations 0.20 1.00 1.00 0.00 0.67 Yes 0.14 1.00 Yes

of 44

Accep

ted

Man

uscr

ipt

Types Groups


CVR, CPA firm

CVR, MIS

CVR, Audit

CVR, ERP

consultant

CVR, all

experts

Screen results




1 Whether dedicated personnel responsible for reporting procedures exist 0.20 1.00 1.00 1.00 0.78 Yes 0.43 1.00 Yes

2 Whether reports are pursuant to the regulations 0.60 1.00 1.00 1.00 0.89 Yes 0.71 1.00 No

Control over the processes of

information disclosure on the assigned

websites 3 Whether backups of the reporting data exist 0.20 1.00 0.67 1.00 0.67 Yes 0.43 0.82 Yes

1 Whether system security planning exists 0.20 1.00 0.67 0.00 0.56 No 0.14 0.82 Yes

2 Whether dedicated personnel responsible for regular audits on information security are present 0.60 0.60 1.00 1.00 0.78 Yes 0.71 0.82 No Independent

information audit units 3 Whether promotions and training programs targeted at internal staff

on information security exist -0.20 0.60 0.67 0.00 0.33 No -0.14 0.64 Yes

1 Whether relevant control procedures regarding system outsourcing exist 0.60 0.60 0.67 1.00 0.67 Yes 0.71 0.64 No

2 Whether evaluations of system outsourcing are present 0.20 0.60 0.67 1.00 0.56 No 0.43 0.64 Yes Control of outsourced

operations 3 Whether contracts are signed for system outsourcing 0.60 0.60 1.00 1.00 0.78 Yes 0.71 0.82 No

of 44

Accep

ted

Man

uscr

ipt

Table 5. Modified internal control framework Dimension Control Items

Whether clear definitions of the responsibilities of maintenance personnel in the MIS department exist Whether application procedures exist for system accounts (authorization) Whether accounts are cancelled after employees leave

Definition of functions and responsibilities of data processing department

Whether user authorization is constantly reviewed Whether application procedures exist for requests to modify system programs Whether modification specifications are confirmed by the MIS department and the department that submits such requests Whether SA and SD program documents relevant to the modifications exist Whether independent environments for development and tests exist Whether updated (newly added) programs are assessed by users

System development and control over program modifications

Whether relevant control measures for changes in system flows exist Control over the compilation of system documents

Whether the documents are updated and modified by version after the modifications (additions) of programs

Whether password controls exist Whether different access authorizations pursuant to the nature of users exist Whether the transfer of external data into the system has undergone verification by relevant programs Whether control over the remote access to the system mainframes exists


Whether dedicated personnel responsible for the maintenance of the system databases exist Whether original documents for input data are present Whether numbering of the documents generated by the system is present Whether verification procedures for the data input/output interface exist Whether appropriate control measures for confidential output data exist


Whether records for any changes in data additions (modifications) exist Whether relevant flows exist to manage the changes in data modification Whether data are regularly backed up Control of data

processing Whether backup data are supported by another location Whether information equipment is protected with security measures Whether access control over facility rooms is present Whether facility rooms are protected with security measures


Whether control procedures to destroy backup data exist

Control over the procurement, use, and maintenance of hardware and system software

Whether the system software is legal

Whether regular tests on system recovery procedures in the face of disaster are conducted System recovery plans/systems and control of testing programs Whether relevant maintenance records and documents exist in case of abnormal situations

Whether dedicated personnel responsible for reporting procedures are present Whether reports are pursuant to the regulations

Control over the processes of information disclosure on the assigned websites

Whether backups of the reporting data exist

Independent information audit units Whether dedicated personnel responsible for regular audits on information security exist

Whether relevant control procedures regarding system outsourcing exist Control of outsourced operations Whether contracts are signed for system outsourcing

of 44

Accep

ted

Man

uscr

ipt

Table 6. Background of the interviewees Case Study

Function

Title

Interviewee

Experience

Audit room Audit supervisor Director Chen Six years in the audit department of the company; eight

years of audit experience Company MIS Assistant

manager Assistant Manager Lin

More than four years of experience in the maintenance and introduction of the ERP system utilized by the company

Reporting accounting

firm

Information risk management and services

Manager Manager Li More than six years of experience in computer audit; served more than 200 companies

of 44

Accep

ted

Man

uscr

ipt

Table 7. Appropriateness and importance of control items Appropriateness Importance Audit dimensions Control items Yes No High Medium Low

Whether clear definitions of the responsibilities of maintenance personnel in the MIS department exist

☆◎ ☆◎

Whether application procedures for system accounts (authorization) exist ☆◎ ☆◎

Whether accounts are cancelled after employees leave ☆◎ ☆◎

Definition of functions and

responsibilities of data processing

department

Whether user authorization is constantly reviewed ☆◎ ☆◎ Whether application procedures for requests to modify system programs exist ☆◎ ☆◎

Whether modification specifications are confirmed by the MIS department and the department that submits such requests

☆◎ ☆◎

Whether SA and SD program documents relevant to the modifications exist ☆◎ ◎ ☆

Whether independent environments for development and tests exist ☆◎ ◎ ☆

Whether updated (newly added) programs are assessed by users ☆◎ ☆◎

System development and

control over program

modifications

Whether independent environments for development and tests exist ☆◎ ☆ ◎

Control over the compilation of

system documents

Whether the documents are updated and modified by version after the modifications (additions) of programs

☆◎ ☆◎

Whether password controls exist ☆◎ ☆◎ Whether different access authorizations pursuant to the nature of users are present ☆◎ ☆◎

Whether the transfer of external data into the system has undergone verification by relevant programs

☆◎ ☆◎

Whether control over the remote access to the system mainframes exists ☆◎ ☆ ◎


Whether dedicated personnel responsible for the maintenance of the system databases exist ☆◎ ◎ ☆

Whether original documents for input data are available ☆◎ ☆ ◎

Whether numbering of the documents generated by the system is available ☆◎ ☆◎ Control of data

inputs and outputs Whether records for changes in data additions (modifications) are available ☆◎ ☆◎

Whether relevant flows to manage the changes in data modification exist ☆◎ ☆◎

Whether data are regularly backed up ☆◎ ☆◎ Control of data processing

Whether backup data are supported by another location ☆◎ ☆ ◎

Whether information equipment is protected with security measures ☆◎ ☆◎

Whether access control over facility rooms exists ☆◎ ☆◎ Whether the facility rooms are protected with security measures ☆◎ ☆ ◎


Whether control procedures are available to destroy backup data ☆◎ ☆ ◎

Control over the procurement, use,

and maintenance of hardware and

software systems

Whether the system software is legal ☆◎ ☆◎

of 44

Accep

ted

Man

uscr

ipt

Appropriateness Importance Audit dimensions Control items Yes No High Medium LowWhether regular tests are conducted for system recovery procedures in the face of disaster ☆◎ ◎ ☆ System recovery

plans/systems and control of testing

programs

Whether relevant maintenance records and documents are available in case of abnormal situations

☆◎ ☆◎

Whether dedicated personnel responsible for reporting procedures exist ☆◎ ☆◎

Whether reports are pursuant to the regulations ☆◎ ☆◎

Control over the processes of information

disclosure on the assigned websites Whether backups of the reporting data exist ☆◎ ☆◎

Independent information audit

units

Whether dedicated personnel responsible for regular audits on information security exist ☆◎ ☆◎

Whether relevant control procedures regarding system outsourcing are available ☆◎ ☆◎ Control of

outsourced operations Whether contracts are signed for system

outsourcing ☆◎ ◎ ☆

☆Director Chen; ◎Assistant Manager Lin

of 44

Accep

ted

Man

uscr

ipt

Prototype Construction

Research Question and Purpose

Theoretical

Philosophies

Theories

Principles

Concepts

Methodological

Knowledge Claims

Interpretations

Transformations

Data Gathering

Comparison and

Revision

Case StudyLiterature ReviewExpert Questionnaire

Figure 1. Research flow

of 44

Accep

ted

Man

uscr

ipt

Authors

Jing Fan

Management School, Shanghai Jiaotong University, China International Business School, Beijing Foreign Studies University, China [email protected]

Pengzhu Zhang

Management School, Shanghai Jiaotong University, China [email protected]

David C. Yen

School of Economics and Business, SUNY College at Oneonta, USA [email protected]