Benefit Of Computerized Audit, Recent Trend or Current Issues - Auditing & Secretarial Practice B Com Notes | EduRev

Auditing and Secretarial Practice

B Com : Benefit Of Computerized Audit, Recent Trend or Current Issues - Auditing & Secretarial Practice B Com Notes | EduRev

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Uses or Benefit of Computerized Audit

  1. Speed : the work of recording of transactions , preparation of books , accounts can be done with greater speed.
  2. Greater accuracy : the chances of arithmetical errors and human errors are reduced to minimum.
  3. Greater economy: under the mechanized accounting system, work can be done with minimum staff, with minimum cost.
  4. Better records: records prepared by machines are neat and clean. It is more legible, systematic and uniform.
  5. Greater information : various types of information and statistical data regarding the operation of the business can be easily collected.
  6. Interim accounts : interim accounts can be prepared without delay. This will help the management to declare interim dividend.
  7. Analysis of data : once the basic information is feed into the computers, it can be sorted in many different ways to provide analysis of statement .
  8. Avoid overtime : the work of accounts are done quickly , the accounts can be prepared without any loss of time.
  9. Reduction in audit fee: the work load of audit works is reduced by the computers. Hence the computerized audit reduces audit cost.
  10. Computerized audit reduces the monotony of audit work:
  11. Computersised audit enhances the reliability of audit
  12. Computersied audit ensures flexibility in the audit programme.
  13. Computersied audit is helpful for the smooth functioning of auditing.

Problems or Disadvantages 

  1. It is not suitable for small business forms.
  2. Difficulties to detect the errors and frauds.
  3. Absence of supporting vouchers.
  4. Storage problem
  5. Computer frauds and computer virus.
  6. Easy to make alterations
  7. It creates unemployment.
  8. Absence of input documents.
  9. Lack of visible output
  10. Coding problem. 

Audit Approaches in an EDP Environment 

There are three approaches to auditing in an EDP environment . They are

1) Auditing around the computer

2) Auditing with the computer

3) Auditing through the computer

Auditing Around the Computer

Auditing around the computer is an audit approach under which an auditor carries out the audit in the same way as in a traditional or Manual system except that, instead of examining hand written books, he examines computer printouts.

Auditing with computers: - under this approach, the auditor does the audit work with the help of computers that is general software. Under this approach, audit work is carried on in an traditional manner, but the computer software is used for certain operations.

Auditing through the computer

Auditing through the computer means making use of computer in auditing. Under this approach the auditor evaluates the internal control relating to EDP and on the basis of evaluation , he determines the nature , timing , and extent of his sustentative procedures.

Internal Control under an EDP Environment

For the control of various problems connected with the installation and operation of computers in accounting and auditing, there should exist an adequate and satisfactory internal control system in the undertaking . The internal control system should be reliable , effective, and should provide timely , authorized and required data from the system.

The various internal controls required to be enforced under an EDP environment may be broadly classified into two categories.

They are,

  1. General EDP controls
  2. EDP application controls.

General EDP Controls.

The purpose of general EDP control is to establish a frame work of overall control over EDP activities. Some of the important general EDP controls are,

  1. Division of responsibility or duties.
  2. Control over development and maintenance of software
  3. Control over operators.
  4. Control over data access and program access.
  5. Control over editing of data.
  6. Storage control.
  7. Hardware control.

EDP Application Control

For the smooth working of EDP system, besides the general EDP controls, there should certain special EDP application controls. The important EDP application controls are

  1. Control over input
  2. Control over processing
  3. Output control

Computer Assisted Auditing Techniques. (CAAT)

Techniques which used computer itself for audit purposes are called computer assisted techniques. The important CAAT are

  1. Test data
  2. Integrated test facility
  3. Controlled processing
  4. Computer audit program

 

Recent trend in auditing or current issues:

There are several current issues in auditing. Some of the important current issues or recent trends in auditing are:

  1. Audit committees
  2. Social audit
  3. Inflation audit
  4. Human resource accounting and auditing
  5. Energy audit
  6. Reporting on financial sickness
  7. Financial forecast and their audit.

Audit Committees: - An audit Committee is a subcommittee of the board of Directors formed for the purpose of reviewing the annual financial statements before their submission to the Board of Directors, assisting the Board of Directors in discharging their function efficiently and for acting as a liaison between the board of directors and the external auditor.

The setting up of audit Committee has been supported by Stock Exchange, Corporate law authorities, Professional accounting bodies.

The Composition of audit Committee depends mainly up on the nature and the size of the business. An audit committee, generally, consists three to five members.

Functions of Audit Committee are: - 

  1. To consider questions of appointment, resignation, dismissal, remuneration of the auditor.
  2. To discuss the nature and scope of duties of external auditor.
  3. To review the half yearly and annual financial statements.
  4. To discuss the issues and problems arising from the audits.
  5. To assist the Board of Directors in the fulfillment of their duties and responsibilities.
  6. To evaluate the efficiency of the working of the Board of Directors

Social Audit: - Social audit is a systematic study and evaluation of a business enterprise’s social performance as distinguished from its economic performance. Social audit is intended to evaluate the social performance or social contribution of a business organization

Reporting on Financial Sickness : - The Sick Industrial Companies are those company which satisfies following conditions:

  1. It is an Industrial company.
  2. It has been registered for a period of not less than five years.
  3. Its accumulated losses at the end of the financial year equal or exceeds its net worth.

An auditor is required to assess the financial health of an enterprise, identify initial financial sickness and reporting on the same.

Financial forecasts and their Audit : - A forecast is a statement of events likely to occur. A financial forecast is a forecast of the financial position of an enterprise in the future. Now a day, certified accountants are required to report on their client’s profit forecast and financial forecast.

Inflation audit : - The accounting which records the effect of changing price is known as inflation accounting. The auditor is required to consider the price level changes recorded in the books of account.

Human resource accounting and auditing: - It is the accounting and recording of human beings in the organization like other assets. The auditor will be called up on to evaluate the human resource investment.

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