today’s lecture application controls audit methodology
TRANSCRIPT
Today’s LectureToday’s Lecture
• application controls
• audit methodology
General vs Application General vs Application ControlsControls
• general implemented consist. across all appl.• application are built into specific programs• distinction often arbitrary - general are usually
reviewed once for audit as a whole• application must be considered for each
significant application• if general are uniformly strong and operate
effectively obtain such assur. wrt each app.• if not, does not mean each appl. affected... need
to consider app by app.
Application ControlsApplication Controls
• hardware - – parity checks, character checks
• input and output controls – at source dep’t and data control
• programmed controls (software)
Effective DesignEffective Design
• designed with regard to business requirements
• designed with regard to business risk analysis
• only rely upon after taking general controls into consideration
• use structured programming techniques• use training
Types of TransactionsTypes of Transactions
• each have different sensitivity and risk of errors
• master file changes - updated only periodically
• normal business applications• error correction transactions
Master File ChangesMaster File Changes
• completeness, accuracy, currency and data authorization
• error would occur every time• make sure using current masters• important to guard against fraud
Normal TransactionsNormal Transactions
• second largest concern • necessary to control effectively• need to include controls over regular
transactions and reports
Error Correction TransactionsError Correction Transactions
• watch bypass potential• errors often put aside and ignored• all should be logged with clear responsibility
for correction• ideally put back through regular processing
Preventive Controls over Preventive Controls over ProcessingProcessing
• data entry as close to source of transact as possible to ensure familiarity
• structure operating procedures so that business activity not complete until transaction processing
• eliminate human component as much as possible
• authorize transactions before data entry
• use access control software
Preventive Controls over Preventive Controls over Processing (cont’d)Processing (cont’d)
• use 3 levels of access • physical access to terminal,
access control over use of terminal and authorization in software
• scrutinize manually prepared input • use computer to edit transactions
• use edit progs to check for missing data, format, self checking digit, limits & logical relation checks
• use key verification & interactive systems• use formatted input screens
Preventive Controls over Preventive Controls over Processing (cont’d) Processing (cont’d)
• use appropriately designed input forms• single source transaction data - input once • document application control procedures -
manuals, etc.• training and supervision• adequate working conditions
Detective ControlsDetective Controls
• use suspense records for impending transactions
• monitor & investigate lack of regular activity (see if transactions omitted)
• verify records by examining assets etc.• prepare budgets/investigate variances• number transactions - check sequence• group and count source documents and
count # transactions processed
Detective Controls (cont’d) Detective Controls (cont’d)
• use control totals to check completeness• reconcile changes in recorded assets and
liabilities to transactions processed• If practical, establish procedures for
verification by users• design programmed reasonableness tests• match processing results to source
documents in detail• check computations
Detective Controls (cont’d)Detective Controls (cont’d)
• use summary and exception reports• use double entry recording to balance
transactions• agree summary records to detailed records• require user approval of results• require error tracking and analysis - develop
stats
Master File ControlsMaster File Controls
• authorize all changes before input
• record changes to semi-permanent listings, reconcile changes
• print out for review by knowledgeable users for errors
• use control totals
• application progs should internally label master files
Errors and Exception ControlsErrors and Exception Controls
• use error and exception reports - ensure follow- up
• user error logs and define correction procedures and responsibilities
• resubmit errors into NORMAL processing cycle - do not bypass
Management & Audit TrailsManagement & Audit Trails
• file each record in planned sequence to facilitate retrieval
• provide unique id for each record• retain source copy for transactions• provide methods of tracing data backwards
and forwards through IS• document retention procedures
Management & Audit Trails Management & Audit Trails (cont’d)(cont’d)
• use logs• periodically copy and save permanent
records that are overwritten by changes• provide software capability to scrutinize &
analyse data
Advanced System Advanced System CharacteristicsCharacteristics
• absence independent evidence• no visible audit trails• lack of auth evidence• heavy I/C reliance• need to understand transaction flow• test controls to be relied upon• audit hardware/software