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a) Explain the two main types of computer assisted audit techniques.
1) Test data
These are designed to test the performance of the clients' programs. What it involves is for the
auditor either using dummy data i.e. data he has created himself or live data i.e. the client's data
that was due for processing to manually work out the expected output using the logic and steps
of the program. This data is then run on the computer using the program and the results are
compared. A satisfactory outcome gives the auditor a degree of assurance that if that programme
is used continuously throughout the year, then it will perform as required. You can see that this
technique of test data falls under compliance testing work/tests of controls.
ii) Computer audit. programs (Audit software)
These consist of computer programs used by an auditor to read magnetic files and to extract
specified information from the files. They 2ire also used to carry out audit work in the contents
of the file. These programs are sometimes called enquiry or interrogation programs. They can be
written by an audit firm themselves or they can be found from software houses. They have the
advantage that unskilled staff can easily be taught to use them,
b) Argue the case for and against a company outsourcing its electronic data processing to a
computer bureau.
Case for
• Swiftness and expertise: Most of the times tasks are outsourced to vendors who specialize
in their field. The outsourced vendors also have specific equipment and technical
expertise, most of the times better than the ones at the outsourcing organization.
Effectively the tasks can be completed faster and with better quality output
• Concentrating on core process rather than the supporting ones: Outsourcing the
supporting processes gives the organization more time to strengthen their core business
process.
• Risk-sharing: one of the most crucial factors determining the outcome of a campaign is
risk-analysis. Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better.
• Reduced operational and recruitment costs: Outsourcing eludes the need to hire
individuals in-house: hence recruitment and operational costs can be minimized to a great
extent. This is one of the prime advantages of offshore outsourcing.
Case against
1. Loss of managerial control
Whether you sign a contract to have another company perform the function of an entire
department or single task, you are turning the management and control of that function over to
another company. True, you will have a contract, but the managerial control will belong • to
another company. Your outsourcing company will not be driven by the same standards and
mission that drives your company. They will be driven to make a profit from the services that
they are providing to you and other businesses like yours.
2. Hidden costs
- You will sign a contract with the outsourcing company that will cover the details of the
service that they will be providing. Anything not covered in the contract will be the basis for you
to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to
review the contacts you will sign. Remember, this is the outsourcing company's business. They
have done this before and they are the ones that write the contract. Therefore, you will be at a
disadvantage when negotiations start.
3. Threat to security and confidentiality
The life-blood of any business is the information that keeps it running. If you have payroll,
medical records or any other confidential information that will be transmitted to the outsourcing
company, there is. a risk that the confidentiality may be compromised. if the outsourced function
involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.),
this must be taken into account. Evaluate the outsourcing company carefully to make sure your
data is protected and the contract has a penalty clause if an incident occurs.
4. Quality problems
The outsourcing company will be motivated by profit. Since the contract will fix the price, the
only way for them to increase profit will be to decrease expenses. As long as they meet the
conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond
to changes in the business environment. The contract will be very specific and you vk ill pay
extra For changes.
5. Tied to-the financial well-being of another company
Since you will be turning over part of the operations of your business to another company, you
will now be tied to the financial well-being of that company. It wouldn't be the first time that an
outsourcing company could go bankrupt and leave you holding-the-hag.
Kavungya answered the question on May 15, 2019 at 08:41
- Outline six benefits that could be derived from using Computer Assisted Audit techniques
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Outline six benefits that could be derived from using Computer Assisted Audit techniques.
(CAATs)
Date posted: May 15, 2019. Answers (1)
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Identify six controls that could be instituted in a new computer based accounting system to
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Date posted: May 15, 2019. Answers (1)
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Explain six ways in which audit software could be used in an audit.
Date posted: May 15, 2019. Answers (1)
- Jikaze Limited operates a computerised purchases system. Invoices and credit notes are posted to
the purchases ledger by the purchases department. The computer subsequently raises a...(Solved)
Jikaze Limited operates a computerised purchases system. Invoices and credit notes are posted to
the purchases ledger by the purchases department. The computer subsequently raises a cheque
when the invoice is due for payment.
Required:
Describe five controls that should be in operation over the addition, amendment and deletion or
suppliers in the computer system.
Date posted: May 15, 2019. Answers (1)
- a) During an audit. the auditor uses a combination of compliance tests or control, analytical
procedures and detailed substantive procedures. When the information system is computer
based,...(Solved)
a) During an audit. the auditor uses a combination of compliance tests or control, analytical
procedures and detailed substantive procedures. When the information system is computer
based, the detailed tests involve the use of manual techniques and computer audit
programs.
Required:
Explain three manual techniques that an auditor could use in the audit of a computer based
information system.
(b) An audit trial can be described as a series of cross-references that enable the auditor to
Follow a transaction from cradle to grave and vice versa and to check the operations
performed at each stage of processing.
The transformation from manual accounting systems to fully computer based information
systems has led to the loss of audit trail such that audit trials are often now:
• Available in machine readable form only or
• Retained only as long as is necessary for the system to verify the transaction.
Required:
Explain the different ways auditors overcome these problems of loss of audit trail.
Date posted: May 15, 2019. Answers (1)
- Briefly explain the following types of audit software
i) Generalised audit software.
ii) Purpose written programs.
iii) Utility programs.(Solved)
Briefly explain the following types of audit software
i) Generalised audit software.
ii) Purpose written programs.
iii) Utility programs.
Date posted: May 15, 2019. Answers (1)
- Summarise ten benefits that could accrue to the auditor from automating audit procedures(Solved)
Summarise ten benefits that could accrue to the auditor from automating audit procedures
Date posted: May 15, 2019. Answers (1)
- Application controls in confirmation technology are designed to ensure the integrity of the
accounting records. They relate to procedures used to initiate, record, process and report
transactions...(Solved)
Application controls in confirmation technology are designed to ensure the integrity of the
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transactions or other financial data.
Date posted: May 15, 2019. Answers (1)
- a) Define the term "live data" as used when auditing through the computer.
b) Describe three disadvantages of using live data testing(Solved)
a) Define the term "live data" as used when auditing through the computer.
b) Describe three disadvantages of using live data testing
Date posted: May 15, 2019. Answers (1)
- a) Discuss. four matters that an auditor should take into consideration in determining
whether or not to use Computer Aided Audit Techniques (CAATs).
b) Describe three practical...(Solved)
a) Discuss. four matters that an auditor should take into consideration in determining
whether or not to use Computer Aided Audit Techniques (CAATs).
b) Describe three practical ways in which auditors might use laptops in the audit work. .
c) Explain three controls that auditors should implement when using laptops during audits.
Date posted: May 15, 2019. Answers (1)
- a) Distinguish between "vouching" and "verification".
b) Outline the audit procedures you would carry out to verify the following items
appearing in the financial statements of a...(Solved)
a) Distinguish between "vouching" and "verification".
b) Outline the audit procedures you would carry out to verify the following items
appearing in the financial statements of a client:
i) Cash in Hand,
ii) Loan to an employee.
iii) Fire insurance premium on factory building,
iv) Sales commission paid to an agent.
Date posted: May 15, 2019. Answers (1)
- a) During the audit of cash in bank, an auditor should seek to obtain standard bank
confirmations from each-hank with which the client conducted business during...(Solved)
a) During the audit of cash in bank, an auditor should seek to obtain standard bank
confirmations from each-hank with which the client conducted business during the period
under audit.
Required;
i) Explain the importance of an auditor obtaining confirmations from the client's bank.
ii) Outline the steps followed by an auditor when obtaining confirmations from the
client's bank.
b) Describe the audit procedures an auditor would carry out when verifying a client's bank
reconciliation.
Date posted: May 14, 2019. Answers (1)
- "An auditor i:., required to use assertions for classes of transactions, account balances and
presentation and disclosure in sufficient detail in order to form a basis...(Solved)
"An auditor i:., required to use assertions for classes of transactions, account balances and
presentation and disclosure in sufficient detail in order to form a basis for the assessment of risks
of material .misstatement and the design:and performance of further audit-procedures"'.
Required:
Identify the assertions used by auditors in the following categories:
i. Assertions about account balances at the period end
ii. Assertions about presentation and disclosure.
Date posted: May 14, 2019. Answers (1)
- Summarise the audit work you would undertake to obtain reasonable assurance that the
following items appearing the Statement of financial position of a client are not...(Solved)
Summarise the audit work you would undertake to obtain reasonable assurance that the
following items appearing the Statement of financial position of a client are not materially
misstated:
i. Specific allowance for doubtful debts.
ii. Trade payables.
Date posted: May 14, 2019. Answers (1)
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Explain how an auditor would carry out the verification of cash at bank.
Date posted: May 14, 2019. Answers (1)
- For each of the following items in the financial statements, identify five forma of third party
evidence that the auditor would rely on.
i. Land
ii. Rent expenses
iii....(Solved)
For each of the following items in the financial statements, identify hvo.forins of third party
evidence that the auditor would rely on.
i. Land
ii. Rent expenses
iii. Motor vehicles
Date posted: May 14, 2019. Answers (1)
- Highlight six audit procedures that you would carry out to verify an acquisition of plant worth
Sh.2 million during the financial year.(Solved)
Highlight six audit procedures that you would carry out to verify an acquisition of plant worth
Sh.2 million during the financial year.
Date posted: May 14, 2019. Answers (1)
- a) Argue the case for carrying out risk analysis during an audit
b) Describe eight procedures for audit of inventory(Solved)
a) Argue the case for carrying out risk analysis during an audit
b) Describe eight procedures for audit of inventory
Date posted: May 14, 2019. Answers (1)
- Describe the audit work that should be carried out by an auditor on suppliers invoices in the
course of auditing purchases.(Solved)
Describe the audit work that should be carried out by an auditor on suppliers invoices in the
course of auditing purchases.
Date posted: May 14, 2019. Answers (1)
- a) List four audit .procedures you would perform on credit notes issued to customers upon
return of goods
b) Explain why it is important for an auditor...(Solved)
a) List four audit .procedures you would perform on credit notes issued to customers upon
return of goods
b) Explain why it is important for an auditor to send a bank letter to his client's bank.
c) Summarize any six procedures that are undertaken by an auditor while obtaining
confirmation from a client's bank.
Date posted: May 14, 2019. Answers (1)