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Control and Audit Information System (Hall, 2015)

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  1. 1. CONTROL AND AUDIT Oleh : ROSDINA 11353200777 Information System| UIN SUSKA RIAU
  2. 2. Auditing and Internal Control
  3. 3. What is an IT Audit? An Information Technology (IT) audit is an audit of an organisation’s IT systems, management, operations and related processes. An IT audit may be carried out in connection with a financial regularity audit or selective audit. As the records, services and operations of many organisations are often highly computerised, there is a need to evaluate the IT controls in the course of an audit of these organisations.
  4. 4. Type of Audit
  5. 5. Why is IT Audit important? Many organisations are spending large amounts of money on IT because they recognise the tremendous benefits that IT can bring to their operations and services. However, they need to ensure that their IT systems are reliable, secure and not vulnerable to computer attacks.
  6. 6. IT audit is important because it gives assurance that the IT systems are adequately protected, provide reliable information to users and properly managed to achieve their intended benefits. Many users rely on IT without knowing how the computers work. A computer error could be repeated indefinitely, causing more extensive damage than a human mistake. IT audit could also help to reduce risks of data tampering, data loss or leakage, service disruption, and poor management of IT systems
  7. 7. An IT control is a procedure or policy that provides a reasonable assurance that the information technology (IT) used by an organization operates as intended, that data is reliable and that the organization is in compliance with applicable laws and regulations. IT Controls can be categorized as either general controls (ITGC) or application controls (ITAC).
  8. 8. Generally Accepted Auditing Standards General Standards Standards of Field Work Reporting Standards 1. The auditor must have adequate technical training and proficiency. 1. Audit work must be adequately planned. 1. The auditor must state in the report whether financial statements were prepared in accordance with generally accepted accounting principles. 2. The auditor must have independence of mental attitude. 2. The auditor must gain a sufficient understanding of the internal control structure. 2. The report must identify those circumstances in which generally accepted accounting principles were not applied. 3. The auditor must exercise due professional care in the performance of the audit and the preparation of the report. 3. The auditor must obtain sufficient, competent evidence. 3. The report must identify any items that do not have adequate informative disclosures.
  9. 9. Internal Control Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following areas: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Safeguarding assets
  10. 10. Examples of Internal Control Think about what you do….. Lock your home and vehicle. Keep your ATM/debit card pin number separate from your card. Expect your children to ask permission before they can do certain things. Don’t leave blank checks or cash just lying around. Review bills and credit card statements before paying them. Reconcile your bank statement.
  11. 11. External vs. Internal Auditors External auditors represent outsiders while internal auditors represent organization’s interests. Internal auditors often cooperate with and assist external auditors in some aspects of financial audits. Extent of cooperation depends upon the independence and competence of the internal audit staff. External auditors can rely in part on evidence gathered by internal audit departments that are organizationally independent and report to the board of directors’ audit committee.
  12. 12. Internal Control 1. Preventive Control 2. Detective Control 3. Corrective Control Internal controls implemented three important functions. Broadly speaking, be explained that these three functions are mutually supportive so that existing systems obtain maximum results for the company. The function of the internal control are as follows:
  13. 13. Training on applicable policies, department policy/procedures; Review and approval process for purchase requisitions to make sure they are appropriate before the purchase; IT access authorizations to ensure access is appropriate; The use of passwords to stop unauthorized access to systems/applications; 1. Preventive Control Controlling for the prevention function is to prevent a problem before the problem arises. Employing highly qualified accounting personnel, employees of adequate segregation of duties, and effectively controlling physical access of the assets, facilities and information, an effective prevention control. Examples of Preventive Controls:
  14. 14. Cash counts; bank reconciliation; Review your payroll reports; Compare transactions on reports to source documents; Monitor actual expenditures against budget; Review logs for evidence of mischief; 2. Detective Control Needed to uncover the problem so the problem arose. An example of a detective control is the examination copies of calculations, prepare bank reconciliations and balance sheet every month. Examples of Detective Controls:
  15. 15. Submit corrective journal entries after discovering an error; Complete changes to IT access lists if individual’s role changes; 3. Corrective Control Serves to solve the problems found in the preventive and detective controls. These controls include procedures that are performed to identify the cause of the problem, fix errors or difficulties that have arisen, and change the system so that future problems can be minimized or eliminated. Examples of Corrective Controls:
  16. 16. Internal Control Pyramid Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009
  17. 17. Risk is Anything that could negatively impact the organization’s ability to meet it’s operational objectives. The purpose behind controls Fraud is a common risk that should not be ignored. The incidence of fraud is now so common that its occurrence is no longer remarkable, only its scale.
  18. 18. Cause of Fraud Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009
  19. 19. How to Mitigate Risk and Fraud Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009
  20. 20. Purpose Of Control A system of internal control is necessary to help employees and other partners understand the attitude and objectives of the organization as a whole. Internal controls provide reasonable assurance to customers and other parties that transactions are recorded properly and in a timely manner. For instance, many consumers have a favorite store because the business is known for providing quality service in a timely manner. In other words, consumers choose to patronize businesses that have good systems of internal control.
  21. 21. Auditing Operating Systems and Networks
  22. 22. Operating Systems Security Log-On Procedure: First line of defense against unauthorized access consisting of user IDs and passwords. Access Token: Contains key information about the user which is used to approve actions attempted during the session. Access Control List: Assigned to each IT resource and used to control access to the resource. Discretionary Access Privileges: Allows user to grant access to another user.
  23. 23. Operating Systems Controls Access Privileges Verify that access privileges are consistent with separation of incompatible functions and organization policies. Viruses & Destructive Programs Verify effectiveness of procedures to protect against programs such as viruses, worms, back doors, logic bombs, and Trojan horses. Password Control Ensure adequacy and effectiveness of password policies for controlling access to the operating system.
  24. 24. Threats 1. Subversive Verify security and integrity of financial transactions. 2. Determine network controls (1) can prevent and detect illegal access; (2) will render captured data useless; and (3) are sufficient to preserve integrity and security of data.
  25. 25. Network Control Purpose of network control is to:  Establish communications sessions.  Manage the flow of data across the network.  Detect and resolve data collisions between nodes.  Detect line failure of signal degeneration errors  Two or more signals transmitted simultaneously will result in data collision which destroys messages.  Polling most popular technique for establishing a communication session in WANs.  Token passing involves transmitting special signal around the network. Only the node processing the token is allowed to transmit data.
  26. 26. Auditing Database Systems
  27. 27. Database Approach Access to the data resource is controlled by a database management system (DBMS). Centralizes organization’s data into a common database shared by the user community. All users have access to data they need which may overcome flat-file problems. 1. Elimination of data storage problem: No data redundancy. 2. Elimination of data updating problem: Single update procedure eliminates currency of information problem. 3. Elimination of task-data dependency problem: Users only constrained by legitimacy of access needs.
  28. 28. Audit Procedures for Testing Database Access Controls Backup policy should balance inconvenience of frequent activity against business disruption caused by system failure. Verify that automatic backup procedures are in place and functioning and that copies of the database are stored off-site. Verify backups are performed routinely and frequently.
  29. 29. The Systems Development Life Cycle
  30. 30. What is the SDLC: When developing a new information system, there are many, many steps that must be followed. The systems development life cycle (SDLC) is an attempt to structure these steps. From the perspective of a definition, the SDLC is a structured step- by-step approach for developing information systems. When developing a system, there are three primary choices you will make very early in the process:  Insourcing is how much will be done by your own IT specialists.  Selfsourcing is how much can be done by the end-users.  Outsourcing is how much will be done by a third-party outside the organization.
  31. 31. Phase 1: Planning: The planning phase of the SDLC involves determining a solid plan for developing your information system. A project manager is an individual who is an expert in project planning and management, defines and develops the project plan, and tracks the plan to ensure all key project milestones are completed on time.
  32. 32. • Define the system to be developed. • Identify and select the system for development or determine which system is required to support the strategic goals of your organization. • Set the project scope. • The project scope clearly defines the high-level system requirements and is the most basic definition of the system. • Define the project plan. • The project plan defines the what, when, and who questions of systems development activities including all activities to be performed, the individuals, or resources, who will perform the activities, and the time required to complete each activity. Three primary activities:
  33. 33. Phase 2: Analysis: The analysis phase of the SDLC involves end users and IT specialists working together to gather, understand, and document the business requirements for the proposed system. The primary activity of this phase is to gather business requirements. Business requirements are the detailed set of knowledge worker requests that the system must meet to be successful. One task to gather business requirements is to perform a joint application development (JAD) session, knowledge workers and IT specialists meet to define and review business requirements. Once all the business requirements are defined, the end-users sign off on them indicating that they approve of all the business requirements.
  34. 34. Phase 3: Design: The primary goal of the design phase is to build a technical blueprint of how the proposed system will work. Your point of view changes from a business perspective to a technical or physical perspective. The technical architecture defines the hardware, software, and telecommunications equipment to run the system. Modeling is the activity of drawing a graphical representation of the design.
  35. 35. Phase 4: Development: During the development phase of the SDLC, you take all your detailed design documents from the design phase and transform them into an actual system. In this phase, you build your technical architecture by buying and setting up the technical architecture during the design phase. Secondly, you create databases and write any necessary software programs. Computer technology advances very rapidly. Sometimes, systems can take several months to develop and the available technologies may change often.
  36. 36. Phase 5: Testing: The testing phase of the SDLC verifies that the system works and meets all the business requirements defined in the analysis phase. First, you develop detailed test conditions, which are the detailed steps the system must perform along with the expected results of each step. Secondly, you actually perform the test. It is important that you do not skip any steps.
  37. 37. Phase 6: Implementation: During the implementation phase of the SDLC, you distribute the system to all the knowledge workers and they begin using the system to perform their everyday jobs. First, you will provide user documentation to the knowledge workers which explain how to use the system. Secondly, provide training for the knowledge workers. You must ensure that all of the knowledge workers have the required training to use the system correctly.
  38. 38. Phase 7: Maintenance: During the maintenance phase of the SDLC, you monitor and support the new system to ensure it continues to meet the business goals. First, you will need to create a help desk to answer your worker’s questions. Secondly, you will need to change the system as your business changes.
  39. 39. Controlling and Auditing the SDLC System planning and analysis. Conceptual system design impacts auditability. Economic feasibility needs to be measured accurately. Systems implementation. Provide technical expertise with regard to accounting rules. Specify documentation standards. Verify control adequacy and compliance with SOX.
  40. 40. A Financial Transaction is..?? An economic event that affects the assets and equities of the firm, is reflected in its accounts, and is measured in monetary terms. Similar types of transactions are grouped together into three transaction cycles:  the expenditure cycle.  the conversion cycle.  the revenue cycle.
  41. 41. A transaction is an agreement between two entities to exchange goods or services OR any other event that can be measured in economic terms by an organization. Example: Sell goods to customers; depreciate equipment. The transaction cycle is a process that begins with capturing data about a transaction and ends with an information output, such as a set of financial statements.
  42. 42. Many business activities are paired in give-get exchanges. The basic exchanges can be grouped into five major transaction cycles. Revenue cycle—Interactions with customers. Give goods; get cash. Expenditure cycle—Interactions with suppliers. Give cash; get goods. Production cycle—Give labor and raw materials; get finished product. Human resources Management/payroll cycle—Give cash; get labor. Financing cycle—Give cash; get cash.
  43. 43. Auditing the Revenue Cycle Thousands of transactions can occur within any of these cycles, but there are relatively few types of transactions in a cycle. Every transaction cycle relates to other cycles and interfaces with the general ledger and reporting system, which generates information for management and external parties. The revenue cycle gets finished goods from the production cycle; provides funds to the financing cycle; and provides data to the general ledger and reporting system.
  44. 44. Auditing the Expenditure Cycle The expenditure cycle gets funds from the financing cycle; provides raw materials to the production cycle; and provides data to the general ledger and reporting system. The production cycle, Gets raw materials from the expenditure cycle; gets labor from the HR/payroll cycle; provides finished goods to the revenue cycle; and provides data to the general ledger and reporting system.
  45. 45. The HR/payroll cycle gets funds from the financing cycle; provides labor to the production cycle; and provides data to the general ledger and reporting system. The financing cycle gets funds from the revenue cycle; provides funds to the expenditure and HR/payroll cycles; and provides data to the general ledger and reporting system. The general ledger and reporting system gets data from all of the cycles and provides information for internal and external users.
  46. 46. Many Accounting software packages implement the different transaction cycles as separate modules. Not every module is needed in every organization, e.g., retail companies don’t have a production cycle. Some companies may need extra modules. So the implementation of each transaction cycle can differ significantly across companies. However the cycles are implemented, it is critical that the AIS be able to accommodate the information needs of managers and integrate financial and non-financial data.
  47. 47. Sumber :
  48. 48. Thank You… Thank You for Your Attention