Internal Audit: Efficiency Through Automation » (New Edition)

David Coderre has over twenty years of experience in internal audit, management consulting, policy development, management information systems, system development, and application implementation areas. He is currently President of CAATS (Computer-Assisted Analysis Techniques and Solutions). He is the author of three highly regarded books on using data analysis for audit and fraud detection.

Internal Audit

Efficiency through Automation

Increased globalization of businesses, market pressure to improve operations, and rapidly changing business conditions are creating demand for technology-enabled auditing (TEA) to ensure timely ongoing assurance that controls are working effectively and that risk is properly mitigated.

Part of Wiley's Institute of Internal Auditors Series, Internal Audit: Efficiency through Automation enables auditors to radically improve the effectiveness of their individual audits and the complete audit function through the application of computer-based audit tools and techniques.

Uniquely providing auditors with strategic and implementational guidance on computer-assisted audit tools and techniques (CAATTs), Internal Audit: Efficiency through Automation explains what continuous auditing does and how it can help auditors make better use of data analytics, while maintaining their independence and objectivity in evaluating the effectiveness of risk management and control assessment processes.

This practical book guides auditors in taking advantage of TEA to allow continuous auditing that tracks anomalies, deficiencies, and unusual trends in every step of the auditing process, from the initial development of the risk-based annual audit plan, to the planning, conducting, reporting, and follow-up phases of individual audits. Filled with numerous case studies illustrating the power and flexibility of standard and audit-specific software packages, it thoroughly discusses relevant topics, including:

• Audit technology
• CAATTs benefits and opportunities
• CAATTs for broader-scoped audits
• The Internet as an audit tool
• The new audit paradigm
• Value-added auditing of inventory systems
• Developing CAATT capabilities

Internal auditors cannot stand by and watch as the rest of the business world embraces new technology. This timely guidebook shows audit managers how to advance the functioning of the audit organization and provides the essential tools to meet the challenges of auditing in today's business environment.

Case Studies.

Preface.

Acknowledgments.

Chapter 1. CAATTs History.

The New Audit Environment.

The Age of Information Technology.

Decentralization of Technology.

Absence of the Paper Trail.

Do More with Less.

Definition of CAATTs.

Evolution of CAATTs.

Audit Software Developments.

Historical CAATTs.

Test Decks.

Integrated Test Facility (ITF).

System Control Audit Review File (SCARF).

Sample Audit Review File (SARF).

Sampling.

Parallel Simulation.

Reasonableness Tests and Exception Reporting.

Traditional Approaches to Computer-Based Auditing.

Systems-Based Approach.

Data-Based Approach.

Audit Management and Administrative Support.

Roadblocks to CAATT Implementation.

Summary and Conclusions.

Chapter 2. Audit Technology.

Audit Technology Continuum.

Introductory Use of Technology.

Moderate Use of Technology.

Integral Use of Technology.

Advanced Use of Technology.

Getting There.

General Software Useful for Auditors.

Word Processing.

Text Search and Retrieval.

Reference Libraries.

Spreadsheets.

Presentation Software.

Flowcharting.

Antivirus and Firewall Software.

Software Licensing Checkers.

Specialized Audit Software Applications.

Data Access, Analysis, Testing, and Reporting.

Standardized Extractions and Reports.

Information Downloaded from Mainframe Applications and/or Client Systems.

Electronic Questionnaires and Audit Programs.

Control Self-Assessment.

Parallel Simulation.

Electronic Working Papers.

Data Warehouse.

Data Mining.

Software for Audit Management and Administration.

Audit Universe.

Audit Department Management Software.

E-mail.

File Transfer Protocol (FTP).

Intranet.

Databases.

Groupware.

Electronic Document Management.

Electronic Audit Reports and Methodologies.

Audit Scheduling, Time Reporting, and Billing.

Project Management.

Extensible Business Reporting Language (XBRL).

Expert Systems.

Audit Early-Warning Systems.

Continuous Auditing.

Continuous Auditing versus Continuous Monitoring.

Example of Continuous Auditing: Application to an Accounts Payable Department.

Stages of Continuous Auditing.

Continuous Auditing Template.

Sarbanes-Oxley.

Important SOX Sections.

The Role and Responsibility of Internal Audit.

Risk Factors.

Detecting Fraud.

Determining the Exposure to Fraud.

SOX Software.

Assessment of IT Controls and Risks.

Defining the Scope.

GAIT Principles.

Governance, Risk Management, and Compliance (GRC).

Internal Audit's Role in the GRC Process.

Identifying and Assessing Management—s Risk Management Process.

Assessment of Internal Control Processes.

GRC Software.

Summary and Conclusions.

Chapter 3. CAATTs Benefits and Opportunities.

The Inevitability of Using CAATTs.

The New IM Environment.

The New Audit Paradigm.

Expected Benefits.

Planning Phase—Benefits.

Conduct Phase—Benefits.

Data Analysis.

Increased Coverage.

Better Use of Auditor Resources.

Improved Results.

Reporting Phase—Benefits.

Administration of the Audit Function—Benefits.

Reduced Costs.

Increased Performance.

Increased Time for Critical Thinking.

Recognizing Opportunities.

Transfer of Audit Technology.

Summary and Conclusions.

Chapter 4. CAATTs for Broader-Scoped Audits.

Integrated Use of CAATTs.

Value-for-Money Auditing.

Value-Added Auditing of Inventory Systems.

Data Analysis in Support of Value-Added Inventory Auditing.

Inventory Management Practices and Approaches.

Possible Areas for Audit-Suggested Improvements.

Audit and Reengineering.

Audit and Benchmarking.

Summary and Conclusions.

Chapter 5. Data Access and Testing.

Data Access Conditions.

Mainframe versus Minicomputer versus Microcomputer.

Portability of Programs and Data.

Limitations to Using the Microcomputer.

Processing Speeds.

Single Tasking.

Inability to Deal with Complex Data and File Structures.

Client Facilities.

Auditor's Microcomputer-Based Facilities.

Data Extraction and Analysis Issues.

Accessing the Data.

Data Storage Requirements.

Analysis of Data.

Risks of Relying on Data—Reliability Risk.

Reliance on the Data.

Knowledge of the System.

Assessment of the Internal Controls.

New Topology of Data Tests.

Reducing Auditor-Induced Data Corruption.

Potential Problems with the Use of CAATTs.

Incorrect Identification of Audit Population.

Improper Description of Data Requirements.

Invalid Analyses.

Failure to Recognize CAATT Opportunities.

Summary and Conclusions.

Chapter 6. Developing CAATT Capabilities.

Professional Proficiency: Knowledge, Skills, and Disciplines.

Computer Literacy: Minimal Auditor Skills.

Ability to Use CAATTs.

Understanding of the Data.

Analytical Support and Advice.

Communication of Results.

Steps in Developing CAATT Capabilities.

Understand the Organizational Environment/Assess the Organizational Culture.

Obtain Management Commitment.

Establish Deliverables.

Set Up a Trial.

Plan for Success.

Track Costs and Benefits.

Lessons Learned.

Organize Working Groups.

Computer Literacy Working Group.

CAATT Working Groups.

Information Systems Support to Audit.

Assure Quality.

Quality Assurance Methodology.

Preventive Controls for CAATTs.

Detective Controls for CAATTs.

Corrective Controls for CAATTs.

Quality Assurance Reviews and Reports.

Summary and Conclusions.

Chapter 7. Challenges for Audit.

Survival of Audit.

Audit as a Learning Organization.

Knowledge Acquisition.

Information Dissemination.

Information Interpretation.

Organizational Memory.

New Paradigm for Audit.

Computer-Assisted Audit Techniques.

Computer-Aided Audit Thought Support.

Auditor Empowerment.

Access to Microcomputers and Computer Networks.

Access to Audit Software—Meta-Languages.

Universal Access to Data.

Access to Education, Training, and Research.

Skills Inventory.

Needed versus Actual Skills.

Required versus Actual Performance.

Auditor Skills for Using CAATTs.

IS Auditor Skills.

Training Programs and Requirements.

Conceptual Training.

Technical Training.

Training Options.

In-house.

Professional Associations.

Educational Institutions.

Computer-Based, Video-Based, and Web-Based Training.

Summary and Conclusions.

Appendices.

Appendix A. The Interneta?'An Audit Tool.

The Internet.

Connecting to the Internet.

General Internet Uses.

Useful Sites for Auditors.

Examples of Audit-Related Internet Usage.

Appendix B. Information Support Analysis and Monitoring (ISAM) Section.

Appendix C. Information Management Concepts.

Appendix D. Audit Software Evaluation Criteria.

General Capabilities.

Reporting Capabilities.

Graphics Capabilities.

Mathematical Functions.

File Manipulation Capabilities.

Record Definition Capabilities.

File Type Capabilities.

Programming Capabilities.

Support.

Other Capabilities.

References.

Index.