BAC 3624

Advanced Auditing

Tutorial 12 Q & A

Question 1
(a) Define the two categories of controls in an Information Technology environment.
(b) Various types of audit software have been used by auditors to improve the efficiency and effectiveness of
audits. Electronic spreadsheets and other software packages are available to aid in the performance of audit
procedures otherwise performed manually.
Required:
Describe the potential benefits to an auditor of using computers and computer software in an audit as
compared to performing an audit without the use of computers.
ANSWER
(a) The two broad categories of Information Technology controls are general controls and application controls.
General controls relate to the overall information processing environment and have a pervasive effect on the
entity's computer operations.
Application controls apply to the processing of specific computer applications and are part of the computer
programs used in the accounting systems.
(b) The potential benefits to an auditor of using PC software in an audit as compared to performing an audit
without the use of a computer include the following:
Time may be saved by eliminating manual casting, cross-casting, and other routine calculations.
Calculations, comparisons, and other data manipulations are performed more accurately.
Analytical procedures calculations may be performed more efficiently.
The scope of analytical procedures may be broadened.
Audit sampling may be facilitated.
Potential weaknesses in a client's internal control system may be identified more readily.
Preparation and revision of flowcharts depicting the flow of financial transactions in a client's system may be
facilitated.
Working papers may be stored and accessed easily.
Graphics capabilities may allow the auditor to generate, display, and evaluate various financial and nonfinancial relationships graphically.
Engagement management information, such as time budgets and the monitoring of actual time versus
budgeted amounts may be generated and analysed more easily.
Standardised audit correspondence, such as engagement letters, client representation letters, and attorney
letters, may be stored and easily modified.
Supervisory review time may be reduced.
Staff morale and productivity may be improved by reducing the time spent on clerical tasks.
Client's personnel may not need to prepare as many schedules manually and otherwise spend as much time
assisting the auditor.
Computer-generated working papers are generally more legible and consistent.

BAC 3624

Advanced Auditing

Tutorial 12 Q & A

Question No. 2
Compare and contrast the functions of internal and external auditors.
Answer to Question 2
External auditors and internal auditors compared and contrasted
Common interests
a. An effective system of internal control.
b. Continuous effective operation of such system,
c. Adequate management information flow.
d. Asset safeguarding.
e. Adequate accounting system (for example to comply with the Companies Act 1965).
f. Ensuring compliance with statutory and regulatory requirements.
Differences
a. Scope - the extent of the work undertaken. Internal audit work is determined by management but the external
auditor's work is laid down by statute.
b. Approach. The internal auditor may have a number of aims in his work including an appraisal of the
efficiency of the internal control system and the management information system. The external auditor is
interested primarily in the truth and fairness of the accounts.
c. Responsibility. The internal auditor is answerable only to management. The external auditor is responsible
to shareholders and arguably to an even wider public, Both are of course answerable to their consciences and
the ethical conceptions of their professional bodies.
Areas of work overlap.
This can apply in the following areas
a. Examination of the system of internal control.
b. Examination of the accounting records and supporting documents.
c. Verification of assets and liabilities.
d. Observation, enquiry and the making of statistical and accounting ratio measurements.
Question 3
What factors should an external auditor use to assess the competence and objectivity of internal
auditors?
Answers
The following factors can be used to judge the competence of the internal auditors:
Educational level and professional experience.
Professional certification and continuing education.
Audit policies, procedures, and checklists.
Practices regarding their assignments.
The supervision and review of their audit activities.
The quality of their working paper documentation, reports, and recommendations
Evaluation of their performance.
The objectivity of the internal auditors can be determined by assessing the following factors:
The organisational status of the internal auditor responsible for the internal audit
function.
Policies to maintain internal auditors' objectivity about the areas audited.