Control and Audit Information System (Hall, 2015)

1. CONTROL AND AUDIT
Oleh :
ROSDINA
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Information System| UIN SUSKA RIAU

2. Auditing and
Internal Control

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. Type of Audit

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Internal Control Pyramid
Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009

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. Cause of Fraud
Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009

19. How to Mitigate Risk and Fraud
Sumber : The Institute of Internal Auditors (IIA) Topeka Chapter, 2009

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. Auditing Operating
Systems and
Networks

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. 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. 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. 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. Auditing
Database Systems

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. 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. The Systems
Development Life
Cycle

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.

32. 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.

33. • 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:

34. 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.

35. 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.

36. 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.

37. 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.

38. 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.

39. 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.

40. 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.

41. 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.

42. 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.

43. 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.

44. 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.

45. 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.

46. 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.

47. 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.

48. Sumber : www.ago.gov.sg

49. Thank You…
Thank You for Your Attention