The auditing of computerized accounting system can easily be accomplished by keeping in mind the following five basic steps. However, before getting started with it, for an efficient execution of audit it is imperative for the auditors to have a clear understanding of the scope of audit with their client.
A. Basic information about the organization of computerized accounting system
B. Identifying hardware and software employed by the client
C. Doing some groundwork to understand important accounting applications for which the computer ha been utilized
D. Identifying and planning of new applications to present application and relevant controls
2. Getting and documenting working of internal controls, general as well application. It is recommended to first test general controls before application controls for if the former are not effective, the auditor would not be in a position to depend on the latter. Some of the important information that general controls contain includes defining of responsibilities, disaster plan, label utilization, back-up files, access control, system for obtaining and executing new program and tools. Application programs comprise of input and output controls, processing controls. These should give reasonably good assurance that initiation, recording and processing plus reporting of data are appropriately executed.
3. Conducting of compliance testing to ascertain if the controls really exist and work as projected. There are three ways of doing it. One is to test data wherein the auditor tests transactions processed by the system working at client’s end and comparing the results to prearranged results. The other way is to process dummy transactions together with factual transactions and comparing the results with prearranged results. The third way is that of parallel simulation wherein actual transactions are executed on client’s computer, as also on another system arranged by auditors having the same programs to compare results. Using any of these ways enables auditors to know if the present controls are working properly.
4. Executing substantive tests to genuineness of data. Auditors must get and assess confirmation of the financial statements of the management. There are five statements: completeness; valuation or allocation; rights and obligations; existence or occurrence; presentation of statement and disclosures. Using these statements, the auditors decide objectives of auditing and corresponding substantive tests for balances and transactions and investigative ways for substantiating statements. The auditors need to get adequate evidence for giving a source for their opinion of financial statements being audited. In the absence of such evidence, they can’t issues an opinion.
5. The final step towards auditing of computerized accounting system is completion of audit report comprising of:
a. Unqualified opinion meaning that the financial reports submitted by the client reasonably well conform to the generally accepted financial statements (GAAP)
b. Qualified opinion, meaning the presented financial reports, while conforming reasonably well to the GAAP, have for a few qualifying issues.
c. A disclaimer of opinion, meaning that the auditors failed to get adequate proof to help them fashion an opinion.
Auditing of computerized accounting system is complete on submission of audit report.