Uses or Benefit of Computerized Audit
Problems or Disadvantages
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.
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,
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
Computer Assisted Auditing Techniques. (CAAT)
Techniques which used computer itself for audit purposes are called computer assisted techniques. The important CAAT are
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:
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: -
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:
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.