Auditing Assignment Part-2 -

Auditing Assignment Part-2

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Question

Describe and Explain how the findings of the research presented in your chosen article extend your appreciation of the impact of internal controls or computerisation on the audit process you are learning.

Accounting Assignment Solution

Inarguably, a strong internal controls framework is critical to any organization, in order to ensure reliable financial reporting, protect the company’s assets from fraud and maintain a continuous momentum of improved operational efficiency, while meeting a variety of compliance requirements. In the selected paper, the author aims to portray how the use of IT has changed the face of performing internal audits and presents some associated risks and drawbacks with this paradigm shift.

In this new environment when heavy reliance is being placed on technology for conducting audits, a wide spectrum of tools has been made available for auditors, including company proprietary tools like ACTT (Deloitte), SODA (PwC) and open source tools like ERAMBA.  Software packages like ACL have proven to demonstrate a significant rise in efficiency by executing a variety of audit tasks, which were earlier required to conduct manually. Availability of added functionalities such as logging and monitoring in the IT systems, favour the performance of audits by maintaining relevant audit trails for future reference. It is no unknown fact that immense time and budget is conventionally spent on accounting and assessment of company transactions, balances and journal data. Use of continuous auditing tools not only reduce these costs but provides additional opportunities for the auditors to focus more on the client’s business and identify risks in support of their internal control structures. With the use of strategic IT systems, fraud and material misstatements can be detected way ahead in the audit timeline, providing companies with a larger turnaround time to remediate issues prior to final audit results.

It is however vital for an auditor to perform adequate assessments that the data being used as audit evidence, when being generated out of a technology system, or when being imported into an audit software for further analysis, is complete and accurate. Data integrity is one of the key challenges which surface when using technology in our audits. With a decrease in manual calculations and financial data being processed out of IT systems, organizations also need to implement additional controls to ensure effective access management and change controls are in place. Associations like ISACA help provide relevant guidance to help organizations strengthen their internal controls and lists directives for external and internal auditors to assess and help remediate all such high and medium risks for the organizations they audit or represent respectively. In order to achieve this said success, another point to note would be that the companies are willing to accept the use of IT and have minimal resistance to the consumption of IT-based practices in their operations and audits.

Another key area which the article focuses on is how too much of “IT-based” information is a bad thing. While obtaining results out of IT systems are relatively simple, bringing them into perspective, to create something meaningful for the Audit Committee or the Board, is an uphill task. Out of successful audits, senior / executive management aim to extract the opportunities and threats that engulf financial reporting. The inability of auditors to establishing acute correlations between IT and financials may defeat the purpose of performing complex data analyses.

Also, while using IT in our audits brings in uncontested benefits, there are a number of accompanying risks which creep in via this upliftment process. Inconsistent patching of the audit software and the related databases, when hosted on a network may expose the system to hacking and other exploitable vulnerabilities. Furthermore, since audit analyses extremely sensitive data, it is imperative that extreme care is exercised in assessing vendor software and ensuring that confidentiality and privacy requirements are met. In order to extend this understanding further, it is fair to add that regular backups are also of prime importance to safeguard huge sizes of audit data being lost, even in the cases of minor disasters like power failures.

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