THE UNIVERSITY OF DODOMA

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

COMPUTERIZED ACCOUNTING APPLICATIONS

(AF 223)

COMPUTERIZED AUDITING

1.0 Introduction
Auditing process is regulated internationally based on International Standards on Auditing
(ISA) as issued by International Federation of accountants (IFAC) through International
Auditing and Assurance Standards Board (IAASB).
It is of paramount importance for a potential auditor to be conversant with computerized
auditing as the supplementary to manual auditing techniques. Many medium and large
businesses run their operations with the aid of the sophisticated systems through which
auditing is to be conducted. Insufficient acquaintance on how the systems work, the auditor
will fail to produce reliable report based on the business conducts.
There are no hard and fast rules as to what constitutes computerized auditing. Often, similar
sized organizations operating in the same sector may have different approaches to
computerized auditing.

2.0 Types of Auditing

2.1 Internal Auditing
This is the first-party audit that is performed within an organization to measure its strengths
and weaknesses against its own procedures or methods and/or against external standards
adopted by (voluntary) or imposed on (mandatory) the organization. A first-party audit is an
internal audit conducted by auditors who are employed by the organization being audited but
who have no vested interest in the audit results of the area being audited.
2.2 External Auditing
This is the second-party audit that is performed on a supplier by a customer or by a
contracted organization on behalf of a customer. A contract is in place, and the goods or
services are being, or will be, delivered. Second-party audits are subject to the rules of
contract law, as they are providing contractual direction from the customer to the supplier.
Second-party audits tend to be more formal than first-party audits because audit results could
influence the customer’s purchasing decisions.
2.3 Third-Party Auditing
A third-party audit is performed by an audit organization independent of the customer-
supplier relationship and is free of any conflict of interest. Independence of the audit
organization is a key component of a third-party audit. Third-party audits may result in

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 certification, registration, recognition, an award, license approval, a citation, a fine, or a
penalty issued by the third-party organization or an interested party.

3.0 Phases in Computerized Auditing

3.1 Audit preparation
Audit preparation consists of everything that is done in advance by interested parties, such as
the auditor, the lead auditor, the client, and the audit program manager, to ensure that the
audit complies with the client’s objective. The preparation stage of an audit begins with the
decision to conduct the audit. Preparation ends when the audit itself begins.
3.2 Audit performance
The performance phase of an audit is often called the fieldwork. It is the data-gathering
portion of the audit and covers the time period from arrival at the audit location up to the exit
meeting. It consists of activities including on-site audit management, meeting with the
auditee, understanding the process and system controls and verifying that these controls
work, communicating among team members, and communicating with the auditee.
3.3 Audit reporting
The purpose of the audit report is to communicate the results of the investigation. The report
should provide correct and clear data that will be effective as a management aid in addressing
important organizational issues. The audit process may end when the report is issued by the
lead auditor or after follow-up actions are completed.
3.4 Audit follow-up and closure
The audit is completed when all the planned audit activities have been carried out, or
otherwise agreed with the audit client. Verification of follow-up actions may be part of a
subsequent audit.

4.0 Computerized Auditing Stages

4.1 Interim Auditing
This is the very first stage in computerized auditing which involves review of transactions
and accounting system in general. At this stage, an auditor goes through the system to cross-
check the transactions and other related issues that were pre-determined through compliance
before the actual accounting process began. This is why it is sometimes referred to as the
compliance testing auditing.
Auditors perform tests of controls to determine that the control policies, practices, and
procedures established by management are functioning as planned. This is known as
compliance testing.
4.2 Financial Statement Auditing
At this stage an auditor verifies as to whether the financial statements really represent the fair
view of the business conduct of the organization. The auditor at the end of the day produces
qualified or unqualified reports based on GAAP. Because this is the intrinsic part of the
computerized auditing, it is most of the time referred to as the substantive testing auditing.

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 Substantive testing is the direct verification of financial statement figures.

5.0 Computerized Auditing Strategies

5.1 Auditing Around the Computer
This is the strategy through which an auditor goes through the input documents and compares
with the output from the computer. In this way the auditor tends to avoid the computer by
just dealing with the inputs and outputs. Among the input documents that an auditor relies on
include the BOE and others.
5.2 Auditing With the Computer
Through this strategy an auditor utilizes the computer to perform some audit work that would
otherwise have to be done manually. Instead of dealing with inputs that are in hard copies,
the auditor goes through them that are in soft copies found in the system.
5.3 Auditing Through the Computer
This is the process of reviewing and evaluating the internal controls in an electronic data
processing system by an auditor.

6.0 Source Documents for Auditing

The ultimate opinion of the auditor depends significantly on the information found in input
documents. These are the materials that an accountant relied on in producing financial
statements. Any document from which a particular data was extracted to produce financial
statements is referred to as auditing material and they include among others receipts,
vouchers, cheques and other BOE to mention the few.

SEMINAR QUESTIONS:
Qn 1: What are the two types of audit testing?
Qn 2: Explain the four main types of audit reports.
Qn 3: What do you understand by the term management assertion?