Auditing IT Governance Controls

Chapter 2:
Auditing IT Governance
Controls
IT Auditing, Hall, 4e
© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Learning Objectives
o Understand the risks of incompatible functions and how to

structure the IT function.
o Be familiar with the controls and precautions required to
ensure the security of an organization’s computer facilities.
o Understand the key elements of a disaster recovery plan.
o Be familiar with the benefits, risks, and audit issues related to
IT outsourcing.
IT Governance
o Subset of corporate governance that focuses on the management

and assessment of strategic IT resources.
o Key objects are to reduce risk and ensure investments in IT
resources add value to the corporation.
o All corporate stakeholders must be active participants in key IT
decisions.
IT Governance Controls
o Three IT governance issues addressed by SOX and the COSO

internal control framework:
o Organizational structure of the IT function.
o Computer center operations.
o Disaster recovery planning.
Structure of the Corporate IT
Function
o Under the centralized data processing model, all data
processing performed at a central site.
o End users compete for resources based on need.
o Operating costs charged back to end user.
o Primary service areas:
o Database administrator.
o Data processing consisting of data control/data entry, computer
operations and data library.
o System development and maintenance
o Participation in systems development activities include system
professional, end users and stakeholders.
Function
Alternative Organization of
Systems Development
Alternative Organization of Systems
Development Problems
o Two control problems with segregating systems analysis from

applications programming.
o Inadequate documentation a chronic problem.
o Documenting systems is not an interesting task.
o Lack of documentation provides job security for the programmer who
coded it.
o When system programmer has maintenance responsibilities,
potential for fraud is increased.
o May have concealed fraudulent code in the system.
o Having sole responsibility for maintenance may allow the programmer
to conceal the code for years.
Function
Segregation of Incompatible IT
Functions
o Systems development from computer operations.

o Relationship between groups should be formal and responsibilities
should not be comingled.
o Database administration from other functions.
o DBA function responsible for many critical tasks and needs to be
organizationally independent of operations, systems development
and maintenance.
o New systems development from maintenance.
o Improves documentation standards because maintenance group
requires documentation.
o Denying original programmer future access deters program fraud.
The Distributed Model
o Distributed Data Processing (DDP) involves reorganizing

central IT function into small IT units that are placed under
the control of end users.
o Two alternatives:
o Alternative A: Variant of centralized model with terminals or
microcomputers distributed to end users for handling input and
output.
o Alternative B: Distributes all computer services to the end users
where they operate as stand alone units.
The Distributed Model
Risks Associated with DDP
o Inefficient use of resources:

o Mismanagement of IT resources by end users.
o Operational inefficiencies due to redundant tasks being performed.
o Hardware and software incompatibility among end-user functions.
o Destruction of audit trails.
o Inadequate segregation of duties.
o Hiring qualified professionals:
o Risk of programming errors and system failures increase directly
with the level of employee incompetence.
o Lack of standards.
Controlling the DDP
Environment
o Implement a corporate IT function:

o Central testing of commercial software and hardware.
o User services to provide technical help.
o Standard-setting body.
o Personnel review.
Audit Objectives and Audit Procedures Based
on Management Assertions
Management Assertions Audit Objectives Audit Procedure
Existence or occurrence Inventories listed on the Observe the counting of physical

balance sheet exist. inventory.
Completeness Accounts payable include all Compare receiving reports, supplier

obligations to vendors for the invoices, purchase orders, and
period. journal entries for the period and the
beginning of the next period.
Rights and obligations Plant \and equipment listed in Review purchase agreements,
the balance sheet are owned insurance policies, and related
by the entity. documents.
Valuation or allocation Accounts receivable are stated Review entity’s aging of accounts
at net realizable value. and evaluate the adequacy of the
allowance for uncorrectable
accounts.
Presentation and disclosure Contingencies not reported in Obtain information from entity
financial accounts are properly lawyers about the status of litigation
disclosed in footnotes. and estimates of potential loss.
Audit Procedures for the DDP
o Audit procedures in a centralized IT organization:

o Review relevant documentation to determine if individuals or
groups are performing incompatible functions.
o Review systems documentation and maintenance records to
verify maintenance programmers are not designers.
o Observe to determine if segregation policy is being followed.
Audit Procedures for the DDP
o Audit procedures in a distributed IT organization:

o Review relevant documentation to determine if individuals or groups
are performing incompatible duties.
o Verify corporate policies and standards are published and provided
to distributed IT units.
o Verify compensating controls are in place when needed.
o Review system documentation to verify applications, procedures and
databased are in accordance with standards.
The Computer Center
o Physical location:
o Directly affects risk of destruction from a disaster.
o Away from hazards and traffic.
o Construction:
o Ideally: single-story, solidly constructed with underground
utilities.
o Windows should not open and an air filtration system should be
in place.
o Access:
o Should be limited with locked doors, cameras, key card
entrance and sign-in logs.
The Computer Center
o Air conditioning should provide appropriate temperature and

humidity for computers.
o Fire suppression:
o Alarms, fire extinguishing system, appropriate construction, fire exits.
o Fault tolerance is the ability of the system to continue operation
when part of the system fails.
o Total failure can occur only if multiple components fail.
o Redundant arrays of independent disks (RAID) involves using
parallel disks with redundant data and applications so if one disk fails,
lost data can be reconstructed.
o Uninterruptible power supplies.
Audit Procedures: The Computer
Center
o Auditor must verify that physical controls and insurance
coverage are adequate.
o Procedures include:
o Tests of physical construction.
o Tests of the fire detection system.
o Tests of access control.
o Tests of RAID.
o Tests of the uninterruptible power supply.
o Tests of insurance coverage.
Disaster Recovery Planning
o A disaster recovery plan is a statement of all actions to be

taken before, during and after any type of disaster. Four
common features:
o Identify critical applications:
o Short-term survival requires restoration of cash flow generating
functions.
o Applications supporting those functions should be identified and
prioritized in the restoration plan.
o Task of identifying critical items and prioritizing applications requires
active participation of user departments, accountants and auditors.
Disaster Recovery Planning
o Create a disaster recovery team:

o Team members should be experts in their areas and have
assigned tasks.
o Provide second-site backup:
o Necessary ingredient in a DRP is that it provides for duplicate data
processing facilities following a disaster.
o Specify back-up and off-site storage procedures:
o All data files, applications, documentation and supplies needed to
perform critical functions should be automatically backed up and
stored at a secure off-site location.
Second-Site Backups
o Mutual aid pact is an agreement between organizations to aid

each other with data processing in a disaster.
o Empty shell or cold site plan involves obtaining a building to
serve as a data center in a disaster.
o Recovery depends on timely availability of hardware.
o Recovery operations center or hot site plan is a fully
equipped site that many companies share.
o Internally provided backup may be preferred by
organizations with many data processing centers.
DRP Audit Procedures
o To verify DRP is a realistic solution, the following tests may be

performed:
o Evaluate adequacy of backup site arrangements.
o Review list of critical applications for completeness.
o Verify copies of critical applications and operating systems are
stored off-site.
o Verify critical data files are backed up in accordance with the DRP.
o Verify that types and quantities of items specified in the DRP exist in
a secure location.
o Verify disaster recovery team members are current employees and
aware of their assigned responsibilities.
Outsourcing the IT Function
o Benefits of IT outsourcing include:

o Improved core business processes.
o Improved IT performance.
o Reduced IT costs.
o Logic underlying outsourcing follows from core competency
theory which argues an organization should focus on its core
business competencies. Ignores an important distinction between:
o Commodity IT assets which are not unique to an organization and
easily acquired in the marketplace.
o Specific IT assets which are unique and support an organization’s
strategic objectives.
o Transaction cost economics (TCE) suggests firms should retain

specific non-core IT assets in house.
o Those that cannot be easily replaced once they are given up in an
outsourcing arrangement.
o Cloud computing is location-independent computing whereby
shared data centers deliver hosted IT services over the Internet.
Offers three primary classes of computing services:
o Software-as-a-Service (SaaS).
o Infrastructure-as-a-Service (IaaS).
o Platform-as-a-Service (PaaS).
o Virtualization has unleashed cloud computing.

o Network virtualization increases effective network bandwidth, optimizes
network speed, flexibility, and reliability, and improves network scalability.
o Storage virtualization is the pooling of physical storage from multiple
devices into what appears to be a single virtual storage device.
o Cloud computing not realistic for large firms.
o Typically have massive IT investments and therefore not inclined to turn
over their IT operations to a could vendor.
o May have critical functions running on legacy systems that could not be
easily migrated to the cloud.
o Commodity provision approach of the cloud incompatible with the need
for unique strategic information.
Risks Inherent to IT
Outsourcing
o Failure to perform.
o Vendor exploitation.
o Outsourcing costs exceed benefits.
o Reduced security.
o Loss of strategic advantage.
Audit Implications of IT
Outsourcing
o Use of a service organization does not reduce management’s

responsibilities under SOX for ensuring adequate IT internal
controls.
o SSAE 16 replaced SAS 70 and is the definitive standard by which
auditors can gain knowledge that processes and controls at third-
party vendors are adequate to prevent or detect material errors.
o Report provides a description of service provider’s description using
either the carve-out or the inclusive method
Audit Implications of IT
Outsourcing
© 2016 Cengage Learning®. May not be scanned, copied or duplicated or
posted to a publicly accessible website, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning
management system for classroom use.

Auditing IT Governance Controls

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Auditing IT Governance Controls

Uploaded by

Copyright:

Available Formats

Chapter 2:

o Understand the risks of incompatible functions and how to

o Subset of corporate governance that focuses on the management

o Three IT governance issues addressed by SOX and the COSO

o Two control problems with segregating systems analysis from

o Systems development from computer operations.

o Distributed Data Processing (DDP) involves reorganizing

o Inefficient use of resources:

o Implement a corporate IT function:

Existence or occurrence Inventories listed on the Observe the counting of physical

Completeness Accounts payable include all Compare receiving reports, supplier

o Audit procedures in a centralized IT organization:

o Audit procedures in a distributed IT organization:

o Air conditioning should provide appropriate temperature and

o A disaster recovery plan is a statement of all actions to be

o Create a disaster recovery team:

o Mutual aid pact is an agreement between organizations to aid

o To verify DRP is a realistic solution, the following tests may be

o Benefits of IT outsourcing include:

o Transaction cost economics (TCE) suggests firms should retain

o Virtualization has unleashed cloud computing.

o Use of a service organization does not reduce management’s

You might also like