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Chapter 11

The Nature of Auditing

Financial Audit Examines the reliability and integrity of financial transactions
Auditing Systematic process of obtaining and evaluating evidence regarding assertions about economic actions and events in order to determine how well they respond with established criteria
Internal Auditing Independent, objective assurance and consulting activity designed to add value and improve organizational effectiveness and efficiency
Operational Audit Concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives
Compliance Audit Determines whether entities are complying with applicable laws and regulations; Often result in recommendations to improve processes and controls.
Investigative Audit Examines incidents of possible fraud.
The Audit Process Planning > Collecting Evidence > Evaluating Evidence > Communicating Audit Results
Inherent Risk (Audit Planning) Susceptibility to material risk in absence of controls
Control Risk (Audit Planning) Risk that a material misstatement will get through the internal control structure and into the financial statements
Detection Risk (Audit Planning) Risk that auditors and their audit procedures will fail to detect a material error or misstatement
IS Audit Objectives 1.) Overall IS security 2.) Program development and acquisition 3.) Program modification 4.) Accurate & complete Computer Processing 5.) Source data 6.) Accurate data files
Computer-assisted audit techniques (CAATS) Uses auditor-supplied specifications to generate a program that performs audit functions
Concurrent audit techniques (CAT) Used to continually monitor the system and collect audit evidence while live data are processed during normal hours
Integrated Test Facility (CAT) Testing technique in which a dummy co. or division is introduced into the co's computer system. Test transactions are then conducted on these fictitious records w/o affecting the real records.
Embedded audit modules Used by CATs; Program code segments that perform audit functions
Snapshot technique (CAT) Selected transactions are marked with special code; audit modules record these transactions and their master file records before and after processing
System control audit review (SCARF) Continuously monitors transaction activity, collects data on transactions with special audit significance and stores it in a SCARF file or audit log
Audit Hooks Audit routines that notify auditors of questionable transactions, often as they occur
Continuous and Intermittent Simulation (CIS) Embeds an audit module in a DB that examines all transactions that update the DB using criteria similar to SCARF
Automated flowcharting programs Interpret source code and generate program flow charts
Automated decision table programs Interpret source code and generate a decision table
Scanning Routines Search a program for all occurrences of specified items
Mapping programs Identifies unexecuted program code
Program tracing Sequentially prints all program steps when a program runs, so the sequences of program execution events can be observed
Created by: ronniemad