Embedded Audit Modules – Sections of the application Program code that collect transaction data for the Auditor

- They are built into the application program when the program is developed. This requires Auditors be involved in System Design
of application to be monitored
- Capture Transaction as they are Processed
- Paperless Transactions/Electronic Transactions

Financial Data processed electronically – Requires Performance Audit Test on Continuous Basis

Test Data Approach – Auditor Tests Computerized Accounting System – consists of “dummy” data run through client’s computer
system while under auditor’s control
- Cannot consist of ALL possible Valid/Invalid Conditions
Test Data – contains invalid information?

Test Data is processed by client’s computer programs under auditor’s control

- Need only test controls which are relied on, and because controls generally need to be tested with on transaction when using Test
Data
- Consists of processing set of “dummy” transactions on Client’s Computer System

Problems w/ Test Data Approach

1. Making certain test data is not included in client’s accounting records
2. Determine that the program tested is actually used by client to process data
3. Adequately developing test data for every possible control
4. Develop adequate data to test key controls is Time Consuming.

Microcomputer
Prepared Data Files vs. Manually Prepared Data Files
Easier Unauthorized access for Microcomputer Prepared

Microcomputers – review Assistants Work - Disadvantage

Audit Docs may not have observable details of calculations

Microcomputer audit Applications – efficient + effectiveness system usage requires (1) Identification of Appropriate Audit Tasks (2)
Appropriate Software to Perform Selected Audit Tasks

Computerized Payroll System – Auditor Introduces Test Data into it, Why? To discover Invalid Employee ID numbers – test Data
includes fictitious data for Auditor to pickup

Use of Software
(1) Access Client Data Files
(2) Prepare SS
(3) Parallel Simulation

Parallel Simulation >. Manual Test – Parallel Simulation can increase sample size at low addition cost.

Integrated Test Facility – Runs Transactions through “live” system and posts to simulated “dummy” files to provide auditor with
information about the operating effectiveness of controls.

Information System – Relevant to Financial Reporting – should obtain knowledge to understand the Process used to prepare
significant accounting Estimates. The Control Activities are not relevant to Financial Reporting.

Electronic Evidence – difficult to determine because evidence not retrievable after certain period = Timing of Control + Substantive
Tests