CPA REVIEW SCHOOL OF THE PHILIPPINES AT-8709 Manila AUDITING THEORY CPA Review 2 AUDITING IN A CIS (IT) ENVIRONMENT . ACIS environment exists when a computer of any type or size Is involved in the processing by the entity of financial information of significance to the audit, whether the computer is operated by the entity or by a third party. . The overall objective and scope of an audit does not change in a CIS environment. ACIS environment may affect: 3. The procedures followed in obtaining a sufficient understanding of the accounting and internal control systems. b. The consideration of the inherent and control risk. c. The design and performance of tests of controls and substantive procedures. . The auditor should have sufficient knowlerlge of the CIS to plan, direct, and review the work performed. If specialized skills are needed, the auditor would seek the assistance of a professional possessing such skills, who may be either on the auditor's staff or an outside professional. ._In planning the portions of the audit which may be affected by the client's CIS environment, the auditor should obtain an understanding of the significance and complexity of the CIS activities and the availability of data for use in the audit. When the CIS are significant, the auditor should also obtain an understanding of the CIS environment and whether it may influence the assessment of inherent and control risks. The auditor should consider the CIS environment in designing audit procedures to reduce audit risk to an acceptably low level. The auditor can use either manual audit procedures, computer-assisted audit techniques, or a combination of both to obtain sufficient evidential matter. RISK ASSESSMENTS AND INTERNAL CONTROL: CIS CHARACTERISTICS AND CONSIDERATIONS Organizational Structure Characteristics of a CIS organizational structure includes: a. Concentration of functions and knowledge Although most systems employing CIS methods will include certain manual operations, generally the number of persons invoived in the processing of financial information is significantly reduced. b. Concentration of programs and data Transaction and master file data are often concentrated, usually in machine-readable form, either in one computer installation located centrally or in a number of installations distributed throughout the entity. Nature of Processing “The use of computers may result in the design of systems that provide less visible evidence than those using manual procedures. In addition, these systems may be accessible by a larger number Of persons. Page 1 of 12 Pages(PAR - MANILA, ars System characteristics that may resuit from the nature of CIS processing inude: 2. Absence of input documents * Data may be entered directly into the computer system without supporting document. In some onine transaction systems, written evidence of individual data entry ‘authorization (e.9., approval for order entry) may be replaced by other procedures, such as authorization controls contained in computer programs (e.9., credit limit approval). b. Lack of visible audit trail ‘The transaction trail may be partly in machine-readable form and may exist only for a limited period of time (e.9., audit logs may be set to overwrite themselves after a period of time or when the allocated disk space is consumed). c. Lack of visible output Certain transactions or resuits of processing may not be printed, or only summary data may be printed. d. Ease of access to data and computer programs and programs by persons inside or outside the entity. Design and Procedural Aspects The development of CIS will generally result in design and procedural characteristics that are different from those found in manual systems. These different design and procedural aspects of AS indude: a. Consistency of performance CIS perform functions exactly as programmed and are potentially more reliable than manual systems, provided that all transaction types and conditions that could occur are anticipated and incorporated into the system. On the other hand, a computer program that is not correctly programmed and tested may consistently process transactions or other data erroneously. b. Programmed control procedures The nature of computer processing allows the design of internal control procedures in computer programs. . Single transaction update of multiple or data base computer files A single input to the accounting system may automatically update all records associated with the transaction. d. Systems generated transactions Certain transactions may be initiated by the CIS itself without the need for an input document. e. Vulnerability of data and program storage media Large volumes of data and the computer programs used to process such data may be stored ‘on portable or fixed storage media, such as magnetic disks and tapes. These media are vulnerable to theft, loss, or intentional or accidental destruction. Page 2 of 12 Pages(PAR - MANILA AT-8709 INTERNAL CONTROLS IN A CIS ENVIRONMENT GENERAL CIS CONTROLS—to establish a framework of overall control over the CIS activities and to provide a reasonable level of assurance that the overall objectives of internal control are achieved. General CIS controls may include: a. Organization and management controls—designed to define the strategic direction and establish an organizational framework over CIS activities, induding: ‘* Strategic information technology plan * CIS polices and procedures * Segregation of incompatible functions ‘Monitoring of CIS activities performed by third party consultants b. Development and maintenance controls—designed to provide reasonable assurance that systems are developed or acquired, implemented and maintained in an authorized and effident manner. They also typically are designed to establish control over: * Project initiation, requirements definition, systems design, testing, data conversion, Go- live decision, migration to production environment, documentation of new or revised ‘systems, and user training. * Acquisition and implementation of off-the-shelf packages. + Request for changes to the existing systems. * Acquisition, implementation, and maintenance of system software. ¢. Delivery and support controls—designed to control the delivery of CIS services and include: + Establishment of service level agreements against which CIS services are measured. Performance and capacity management controls. * Event and problem management controls. * Disaster recovery/contingency planning, training, and file backup. * Computer operations controls. * Systems security. * Physical and environment controls. d. Monitoring controls—designed to ensure that CIS controls are working effectively as planned. These include: ‘ Monitoring of key CIS performance indicators. * Internal/external CIS audits. CIS APPLICATION CONTROLS—to establish specific control procedures over the application systems in order to provide reasonable assurance that all transactions are authorized, recorded, and are processed completely, accurately and on a timely basis. CIS application controls include: a. Controls over input—designed to provide reasonable assurance that: * Transactions are properly authorized before being processed by the computer. + Transactions are accurately converted into machine readable form and recorded in the computer data files. ‘Transactions are not lost, added, duplicated or improperly changed. ‘Incorrect transactions are rejected, corrected and, If necessary, resubmitted on a timely basis, b. Controls over processing and computer data files—designed to provide reasonable assurance that: * Transactions, including system generated transactions, are properly processed by the computer. * Transactions are not lost, added duplicated or improperly changed. Page 3 of 12 PagesCPAR- MANILA, « Processing errors (ie., rejected data and incorrect transactions) are identified and corrected on a timely basis. c. Controls over output—designed to provide reasonable assurance that: « Results of processing are accurate. # Access to output is restricted to authorized personnel. * Output Is provided to appropriate authorized personnel on a timely basis. Review of general CIS controls General CIS contro's that relate to some or all applications are typically interdependent contra! Pee their operation is often essential to the effectiveness of CIS application controls, ceding, may be more efficient to review the design ofthe general contots before reviewing the application controls. Review of CIS application controls CIS application controls which the auditor may wish to test include: a. Manual controls exercised by the user b. Controls over system output ¢. Programmed control procedures ENVIRONMENTS — STAND-ALONE PERSONAL COMPUTERS 1. A personal computer (PC) can be used in various configurations. These indude: a. a stand-alone workstation operated by a single user or a number of users at different times; b. a workstation which is a part of a Local Area Network (LAN) of PCs; and ca workstation connected to a server. 2. Ina stand-alone PC environment, it may not be practicable or cost-effective for management to implement sufficient controls to reduce the risks of undetected error to a ‘minimum level. 3, After obtaining the understanding of the accounting system and control environment, the ‘auditor may find it more cost-effective not to make a further review of general controls or application controls, but to concentrate audit efforts on substantive procedures. (CIS ENVIRONMENTS — ON-LINE COMPUTER SYSTEMS 1. On-line computer systems are computer systems that enable users to access data and programs directy through terminal devices. 2. Ondine systems allow users to directly initiate various functions such as: a. entering transactions d. updating master files b._ making inquiries . electronic commerce activities 3. Types of terminals used in on-line systems: ‘A. General purpose terminals 1, Basic keyboard and screen 3. PCS 2. Intelligent terminal B. Special purpose terminals 1. Point-of-sale devices 2. Automated Teller Machines (ATM) Page 4 of 12 Pages(CPAR - MANILA, AI-8703 4. Types of on-tine computer systems: a. Ondine/Real Time Processing Individual transactions are entered at terminal devices, validated, and used to update related computer files Immediately, b. Ondine/Batch Processing Individual transactions are entered at a terminal device, subjected to certain validation checks, and added to a transaction file that contains other transactions entered during the period. Later, during a subsequent processing cycle, the transaction file may be validated further and then used to update relevant master file. ¢. On-line/Memo Update (and Subsequent Processing) = Combines on-line/real-time and on-line/batch processing. + Individual transactions immediately update a memo file containing information that. has been extracted from the most recent version of the master file. Inquires are made from this memo file. - These same transactions are added to a transaction file for subsequent validation and updating of the master file on a batch basis. 4. On-tine/Inguiry ~ Restricts users at terminal devices to making inquiries of master file. ~ Master files are updated by other systems, usually on a batch basis. €.Ontine Downtoading/Uploading Processing ~ On-line downloading refers to the transfer of data from a master file to an intelligent terminal device for further processing by a user. NETWORK ENVIRONMENT 1. A network environments a communication system that enables computer users to share ‘computer equipment, application software, data, and voice and video transmissions. 2. A file serveris a computer with an operating system that allows multiple users in a network to access software applications and data files. 3. Basic types of networks a. Local Area Network (LAN) Metropolitan Area Network (MAN) b. Wide Area Network (WAN) (CIS ENVIRONMENTS - DATABASE SYSTEMS 1. Database - A collection of data that is shared and used by many different users for different purposes. 2. Two components of database systems: a. Database b. Database Management System (DEMS) - software that creates, maintains, and operates the database. 3. Characteristics of database systems. a. Data sharing b. Data Independence ELECTRONIC DATA INTERCHANGE (EDI) ~ the electronic exchange of transactions, from ‘one entity’s computer to another entity's computer through an electronic communications Network. In Electronic Fund Transfer (EFT) Systems, for example, electronic transactions replace checks as a means of payment. Page S of 12 PagesSPAR = MANILA, Av-a709 DI controls indude: a. Authentication ~ controls must exst over the origin, proper submissk Proper delivery of EDI communications to ensure that the ELI messages are curate sent and received to and from authorized customers and suppliers. b. Eneryption ~ involves conversion of plain text data to cipher text messages unreadable to unauthorized persons. aa cad ©. VAN controls — A value added network (VAN) Is a computer service organization that Provides network, storage, and forwarding (mailbox) services for EDI messages. AUDIT APPROACHES 1, Auditing around the com ~ the auditor ignores processir function of an entiy’s EDP system ° eee io - Auditing with the computer — the computer is used as an audit tool. . Auditing through the computer ~ the auditor enters the client's system and examines directly the computer and its system and application software. wn COMPUTER ASSISTED AUDIT TECHNIQUES FOR TESTS OF CONTROLS L babs ily analysis — techniques that allow the auditor to gain an understanding of the client's ram. 1. Code review — involves actual analysis of the logic of the program’s processing routines. 2. Comparison programs — programs that allow the auditor to compare computerized files. 3. Flowcharting software — used to produce a flowchart of a program’s logic and may be used both in mainframe and microcomputer environments. 4. Program tracing and mapping - Program tracing is a technique in which instruction ‘executed is listed along with control information affecting that instruction. Program ‘mapping identifies sections of code which may be a potential source of abuse. 5. Snapshot — This technique “takes a picture” of the status of program execution, intermediate results, or transaction data at specified processing points in the program Processing. I. Program testing — involves the use of auditor-controlled actual or simulated data. 1. Historical audit techniques — test the audit computer controls at a point in time. a. TEST DATA * Asset of dummy transactions specifically designed to test the control activities that management claims to have incorporated into the processing programs. © Shifts control over processing to the auditor by using the client’s software to process auditor-prepared test data that includes both valid and invalid conditions. * If embedded controls are functioning properly, the client’s software should detect all the exceptions planted in the auditor's test data. ‘© Ineffective if the client does not use the software tested. b. BASE CASE SYSTEM EVALUATION (BCSE) © Develops test data that purports to test every possible condition that an auditor expects a client’s software will confront. = Provides an auditor with much more assurance than test data alone, but expensive to develop and therefore cost-effective only in large computer systems. Page 6 of 12 PagesPAR - MANILA ar.s709 INTEGRATED TEST FACILITY (ITF) * A variation of test data whereby simulated data and actual data are run simultaneously with the client's program and computer results are compared with auditor's predetermined results. * It provides assurance that the software tested is actually used to prepare financial reports. d. PARALLEL SIMULATION * It involves processing of client's live (actual) data utilizing an auditor's generalized audit sofware. * Ifan entity's controls have been operating effectively, the client’s software should generate the same exceptions as the auditor's software. * It should be performed on a surprise basis, if possible. @. CONTROLLED REPROCESSING * A variation of parallel simulation, it involves processing of actual client data through a copy of the client's application program. 2. Continuous audit techniques - test the audit computer controls throughout a period. @. AUDIT MODULES - programmed audit routines incorporated into an application Program that are designed to perform an audit function such as a calculation, or logging activity. b. SYSTEMS CONTROL AUDIT REVIEW FILES (SCARFs) - logs that collect transaction information for subsequent review and analysis by the auditor. AUDIT HOOKS — “exits” in an entity’s computer program that allows an auditor to insert commands for audit processing. d. TRANSACTION TAGGING — a transaction record is “tagged” and then traced through Critical control points in the information system. e. EXTENDED RECORDS - this technique attaches additional audit data which would not otherwise be saved to regular historic records and thereby helps to provide a more complete audit trail. IIL. Review of operating system and other systems software 1, JOB ACCOUNTING DATA/OPERATING SYTEMS LOGS ~ these logs that track particular functions, include reports of the resources used by the computer system. The auditor may be able to use them to review the work processed, to determine whether unauthorized applications were processed and to determine that authorized applications were processed properly. . LIBRARY MANAGEMENT SOFTWARE - this logs changes in programs, program modules, Job control language, and other processing activities, . ACCESS CONTROL AND SECURITY SOFTWARE — this restricts access to computers to authorized personnel through techniques such as only allowing certain users with "read- only” access or through use of encryption. COMPUTERIZED AUDIT TOOLS 1. ‘Audit software — computer programs usad to process data of audit significance from the dlient’s accounting system. ‘Programs (also called generalized audit software) — programs that can be used . Package in numerous clients. They can be designed to perform different audit tasks such as: Page 7 of 12 Pages1. reading computer files 4. creating data files 2. selecting samples 5. Printing reports in an auditor-specified format 3. performing calculations b. Purpose-written programs (also called special-purpose or custom-designed programs) — ‘computer programs designed for specific audit tasks. Utility programs — part of the systems software that perform routine CIS tasks. They are generally NOT designed for audit purposes. . Electronic spreadsheets — contain a variety of predefined mathematical operations and functions that can be applied to data entered Into the cells of a spreadsheet. Automated workpaper software — designed to generate a trial balance, lead schedules, ‘and other reports useful for the audit. The schedules and reports can be created once the auditor has either manually entered or electronically imported through using the cllent’s ‘account balance information into the system. ‘Text retrieval software - allow the user to view any text that is available in an electronic format. The software program allows the user to browse through text files much as a user would browse through books. . Database management systems — manage the creation, maintenance, and processing of information. The data are organized in the form of predefined records, and the database software is used to select, update, sort, display, or print the records. . Public databases — may be used to obtain accounting information related to particular ‘companies and industries. . Word processing software FACTORS TO CONSIDER IN USING CAAT weene Degree of technical competence in CIS. . Availability of CAAT and appropriate computer facilities. Impracticability of manual tests. Effectiveness and efficiency. ‘Timing of tests - The auditor should make arrangements with the client for the retention of the needed data or to time the work when such data are available. Controlling the CAAT application Procedures to control the use of AUDIT SOFTWARE may include: Noyayne Participating in the design and testing of computer programs. Checking the coding of the program. Requesting the dlient’s CIS personnel to review the operating system instructions. Running the audit software on small test files before running them on main data files. Ensuring that the correct files were used. ‘Obtaining evidence that the audit software functioned as planned. Establishing appropriate security measures to safeguard against manipulation of the entity's data files, Procedures to control the use of TEST DATA may include: waune . Controlling the sequence of submission of test data where it spans several processing cycles. Performing test runs. . Predicting the results of test data. |. Confirming that the current version of the program was used. Obtaining reasonable assurance that the programs used to process the test data were used by the entity throughout the applicable audit period. Page 8 of 12 PagesPros -PAR = MANILA, ar-8709 MULTIPLE CHOICE QUESTIONS 1, Which of the following characteristics distinguishes computer processing from manual processir ing? A. Computer processing virtually eliminates the occurrence of computational error normally assodated with manual processing. B, Errors or fraud in computer processing will be detected soon after their occurrences. CC. The potential for systematic error is ordinarily greater in manual processing than In computerized processing. D. Most computer systems are designed so that transaction trails useful for audit purposes do not exist. 2. Which of the following is correct concerning batch processing of transactions? ‘A. Transactions are processed in the order they occur, regardless of type. B. Ithas largely been replaced by on-line real-time processing in all but legacy systems. C. It is more likely to result in an easy-to-follow audit trall than is on-line transaction processing. D. Itis used only in nondatabase applications. 3. Which of the following procedures would an entity most likely include in its computer disaster recovery plan? A. Develop an auxiliary power supply to provide uninterrupted electricity. B. Store duplicate copies of critical files in a location away from the computer center. | C. Maintain a listing of entity passwords with the network manager. D. Translate data for storage purposes with a cryptographic secret code. ! 4, What technology is needed in order to convert @ paper document into a computer file? A. Optical character recoanition _C. Bar-coding scanning B. Electronic data interchange D. Joining and merging | 5. Amanufacturer of complex electronic equipment such as oscilloscopes and microscopes has been shipping its products with thick paper manuals but wants to reduce the cost of producing and shipping this documentation. Of the following, the best medium for the | manufacturer to use to accomplish this is ! A. Write-once-read-many. ] B. Digital audio tape. C. Compact disc/read-oniy memory. D. Computer-output-to-microform. 6. Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately because ‘A. Errors in some transactions may cause rejection of other transactions in the batch. B. The identification of errors in input data typically is not a part of the program. C. There are time delays in processing transactions in a batch system. D. The processing of transactions in a batch system is not uniform. 7. client is concemed that a power outage or disaster could impair the computer hardware’s ability to function as designed. The client desires off-site back-up hardware facilities that are fully configured and ready to operate within several hours, The client most likely should consider a A. Cold site. C. Warm site. B. Cool site. D. Hot site. 8. What type of computer system is characterized by data that are assembled from more than ‘one location and records that are updated immediately? A. Microcomputer system C. Batch processing system B. Minicomputer system D. Online, real-time system 9, End-user computing is most likely to occur on which ofthe following types of computers? A. Mainframe . Personal computers B. Minicomputers D. Personal reference assistants Page9 of 12 PagesCPAR = MANILA AT-8708 MULTIPLE CHOICE QUESTIONS 1. Which of the following characteristics distinguishes computer processing from manual rocessing? n Computer processing virtually eliminates the occurrence of computational error: normally associated with manual processing. B. Errors or fraud in computer processing will be detected soon after their occurrences. C. The potential for systematic error is ordinarily greater in manual processing than in computerized processing. D. Most computer systems are designed so that transaction trails useful for audit purposes do not exist. 2. Which of the following is correct concerning batch processing of transactions? A. Transactions are processed in the order they occur, regardless of type. B. It has largely been replaced by on-line real-time processing in all but legacy systems. C. It ls more likely to result in an easy-to-follow audit trail than is on-line transaction processing. D. Its used only in nondatabase applications, 3. Which of the following procedures would an entity most likely include in its computer disaster recovery plan? A. Develop an auxiliary power supply to provide uninterrupted electricity. 8. Store duplicate copies of critical files in a location away from the computer center. CC. Maintain a listing of entity passwords with the network manager. D. Translate data for storage purposes with a cryptographic secret code. 4. What technology is needed in order to convert a paper document into a computer file? A. Optical character recognition C.Bar-coding scanning B. Electronic data interchange D. Joining and merging 5. A manufacturer of complex electronic equipment such as oscilloscopes and microscopes has been ‘shipping its products with thick paper manuals but wants to reduce the cost of Producing and shipping this documentation. Of the following, the best medium for the ‘manufacturer to use to accomplish this is A. Write-once-read-many. B. Digital audio tape. C. Compact disc/read-only memory. D.- Computer-output-to-microform. 6. Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately because A. Errors in some transactions may cause rejection of ather transactions in the batch. 8. The identification of errors in input data typically is not a part of the program. C. There are time delays in processing transactions in a batch system. D. The processing of transactions in a batch system is not uniform. 7. Addient is concemed that a power outage or disaster could impair the computer hardware’s ability to function as designed. The client desires off-site back-up hardware facilities that are fully configured and ready to operate within several hours. The client most likely should consider a A. Cold site, C. Warm site. B. Cool site, D. Hot site, 8. What type of computer system is characterized by data that are assembled from more than ‘one location and records that are updated immediately? ‘A. Microcomputer system C. Batch processing system B. Minicomputer system D. On-line, real-time system 8. End-user computing is most likely to occur on which of the following types of computers? A. Mainframe C. Personal computers B. Minicomputers D. Personal reference assistants Page 9 of 12 Pages‘CPAR - MANILA _ AT-8709 10. Which of the following statements most lkely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files? ‘A. Random error associated with processing similar transactions in different ways Is usually greater. B. Tt Is usually more difficult to compare recorded accountability with physical count of assets. co Attention is focused on the accuracy of the programming process rather than errors in individual transactions. D. Itis usually easier for unauthorized persons to access and alter the files, 11. To avoid Invalid data input, a bank added an extra number at the end of each account ‘umber and subjected the new number to an algorithm. ‘This technique is known as ‘A. Optical character recognition C. A dependency check B. Acheck digit D. A format check 12, Preventing someone with sufficient technical skil from circumventing security procedures ‘and making changes to production programs is best accomplished by ‘A. Reviewing reports of jobs completed. B. Comparing production programs with independently controlled copies. C. Running test data periodically. D. Providing suitable segregation of duties. 13. An entity has the following invoices in a batch: Invoice # Product ‘Quantity. Unit Price 201 F10 150 P 5,00 202 G15 200 P10.00 203 H20 250 P25.00 204 tas 300 30.00 Which of the following most likely represents a hash total? A. FGHK80 Cc. 204 B.4 D. 810 14. Which of the following controls is a processing control designed to ensure the reliability and accuracy of data processing? ‘Umit test Validity check test Yes Yes A. B. No No Cc No Yes D. Yes No 15. Which of the following activities would most likely be performed in the information systems department? ‘A. Initiation of changes to master records. B. Conversion of information to machine-readable form. C. Correction of transactional errors, D. Initiation of changes to existing applications, 16. When computer programs or files can be accessed from terminals, users should be required to enter a(n) ‘A. Parity check C. Self-diagnosis test B. Personal identification code D. Echo check 17. Which of the following is an example of a validity check? ‘A. The computer ensures that a numerical amount in a record does not exceed some Predetermined amount. B. As a computer corrects errors and data are successfully resubmitted to the system, the Causes of the errors are printed out. C. The computer flags any transmission for which the control fleld value did not match that of an existing file record. Page 10 of 12 PagesCPAR = MANILA Ar S709 18. 19. 20. 21. 22. 23. 24, 25. . After data for a transaction are entered, the computer sends certain data back to the ‘terminal for comparison with data originally sent. ‘A control feature in an electronic data processing system requires the central processing unit (CPU) to send signals to the printer to activate the print mechanism for each character. ‘The print mechanism, just prior to printing, sends a signal back to the CPU verifying that the proper print position has been activated. This type of hardware control Is referred to as A. Echo control. C. Signal control. B. Validity control, D. Check digit control. Which of the following mast likely represents a significant deficiency in internal control? ‘A. The systems analyst reviews applications of data processing and maintains systems documentation. B. The systems programmer designs systems for computerized applications and maintains ‘output controls. . The control clerk establishes control over data received by the information systems department and reconciles control totals after processing. D. The accounts payable clerk prepares data for computer processing and enters the data into the computer. Internal control is ineffective when computer department personne! ‘A. Participate in computer software acquisition decisions. 8. Design documentation for computerized systems, C. Originate changes in master files. ©. Provide physical security for program files. An auditor would most likely be concemed with which of the following controls in a distributed data processing system? ‘A. Hardware controls C. Access controls B. Systems documentation controls _-D._Disaster recovery controls ‘An auditor anticipates assessing control risk at a low level in a computerized environment. Under these circumstances, on which of the following activities would the auditor initially focus? ‘A. Programmed control activities C. Output control activities B. Application control activities D. General contro! activities Auditing by testing the input and output of a computer system instead of the computer rogram itself will Not detect program errors which do not show up in the output sampled. A. B. Detect all program errors, regardless of the nature of the output. C. Provide the auditor with the same type of evidence. D. .. Not provide the auditor with confidence in the results of the auditing procedures. Which of the following client electronic data processing (EDP) systems generally can be audited without examining or directly testing the EDP computer programs of the system? ‘A. A system that performs relatively uncomplicated processes and produces detailed output. 8. A system that affects a nurnber of essential master files and produces a limited output. C. Asystem that updates a few essential master files and produces no printed output other D. than final balances. . A system that performs relatively complicated processing and produces very little detailed output, 7 To obtain evidence that on-line access controls are properly functioning, an auditor most likely would ‘A Create checkpoints at periodic intervals after live data processing to test for Unauthorized use of the system. Page 11 of 12 PagesEARS MAMA 0 gos 26. 27. 28. 29. 30. 8B. Examine the transaction log to discover whether any transactions were lost or entered ‘twice due to a system malfunction. C. Enter invalid identification numbers or passwords to ascertain whether the system rejects them. D. Vouch a random sample of processed transactions to assure proper authorization. An auditor most likely would introduce test data into a computerized payroll system to test controls related to the A. Existence of undaimed payroll checks held by supervisors. B, Early cashing of payroll checks by employees. CC. Discovery of invalid employee 1.0. numbers. D. Proper approval of overtime by supervisors. ‘When an auditor tests a computerized accounting system, which of the following Is true of the test data approach? A. Several transactions of each type must be tested. B. Test data are processed by the client's computer programs under the auditor's control. C. Test data must consist of all possible valid and invalid conditions. Dd. The program tested is different from the program used throughout the year by the dient. Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client operating personnel being aware of the ‘testing process? A. Integrated test facility C. Parallel simulation B. Input controls matrix D. Data entry monitor Which of the following methods of testing application controls utilizes a generalized audit software package prepared by the auditors? A. Parallel simulation . Test data approach B. Integrated testing facility approach. Exception report tests In creating lead schedules for an audit engagement, a CPA often uses automated work ‘software. What client information is needed to begin this process? A. Interim financial information such as third quarter sales, net income, and inventory and receivable balances. B. Specialized journal information such as the Invoice and purchase order numbers of the last few sales and purchases of the year. General ledger information such as account numbers, prior year account balances, and current year unadjusted information. ‘Adjusting entry information such as deferrals and accruals, and reclassification journal entries. po ~END— Pago 12 of 12 Pages