MANAGEMENT CONTROL SYSTEM

PRESENTATION ON

AUDIT AND IT AUDIT

KAPIL KR. BANSAL-11BSP1424MOHIT MITTAL-11BSP1813

BY

AUDITAudits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis.

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The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, water management, and energy conservation.

HISTORICAL BACKGROUND

•The role of auditor goes back many hundreds of years. These are records from ancient Egypt and Rome, showing that people were employed to review work done by taxes collector and estate managers.•The emphasis was very much on the detection of fraud and other irregularities.•Emphasis has changed and the role of the auditor becomes much more sophisticated.

Basic Type of Audit

Audits can be categorized in to two types:

Financial audit

Non financial audit

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Financial audit: Address questions of accounting, recording, and

reporting of financial transactions. Reviewing the adequacy of internal controls also falls within the scope of financial audits.

Non financial audit:

It is non statutory one and serves two purposes It checks company’s compliance to standards It determines whether a product or service

satisfy the customer’s demands in terms of quality and features.

DIFFERENT CATEGORIZATION OF AUDIT

Statutory Audit Privates Audit Internal Audit Management Audit IT Audit

Statutory Audit

A legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions

For Example,

a state law may require all municipalities to submit to an annual statutory audit examining all accounts and financial transactions and to make the results of the audit available to the public. The purpose of such an audit is to hold the government accountable for how it is spending taxpayers' money.

Private Audit

When the audit is not a statutory requirement , but is conducted at the desire of owners , such an audit is private audit . The audit is conducted primarily for their own interest. At times the private audit may become a requirement under tax laws , if the turnover exceeds a specified limit.

Private Audit is following types 1 audit of sole proprietorship

2 audit of partnership firms3 audit of individuals accounts 4 audit institutions not covered by statutory audit

Internal Audit

The examination, monitoring and analysis of activities related to a company's operation, including its business structure, employee behavior and information systems.

Internal audit found to play the following roles- Check weather existing controls are effective

and adequate. Weather financial and other reports show the

actual results of the company Weather subunits are following the policies and

procedures laid down by the company.

Management Audit

Analysis and assessment of competencies and capabilities of a company's management in order to evaluate their effectiveness, especially with regard to the strategic objectives and policies of the business. The objective of a management audit is not to appraise individual executive performance, but to evaluate the management team in relation to their competition.

Information System Audit

Address the internal control environment of automated information processing systems and how these systems are used. IS audits typically evaluate system input, output and processing controls, backup and recovery plans, and system security, as well as computer facility reviews.

IA’s scope of work is comprehensive and considers all aspects of the organization - both financial and non-financial - with an emphasis on constructive improvement.

Audit process

Staffing the audit team Creating an audit project plan Laying the groundwork for audit Analyzing audit results Sharing audit results Writing audit results Dealing with resistance to audit

recommendations Building an ongoing audit programs.

ADVANTAGES OF AUDIT

Companies DirectorsAssurance that statutory responsibilities concerning accounts have been carried out.Availability of expert advise.The letter of weakness.

To ShareholdersAssurance that accounts show a true and fair view and comply with statutory requirementsOther Organization with publish accountsAssurance that accounts are reliable

In addition they provide reliable accounts to regulatory bodies such as the companies Registry, the stock exchange etc.

OBJECTIVE OF AUDITING

Primary Objective:

To produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading and using them can belief in them.

Secondary Objective:•To detect Error and Fraud• To prevent Errors and fraud by the deterrent and moral effects of Audit

Other Objectives of Audit

Completeness Ownership Accuracy Valuation Classification Disclosure

Limitation of Audit

An audit can neither help in prioritizing changes nor in allocating resources.

Audit cannot mobilize people to take actions. though audit identifies various problems that exist in the organizational system and processes

Audit can not generate better data than the measures used to gather those.

Audit Evidence

Audit evidence is evidence obtained during a financial audit and recorded in the audit working papers.

In the audit engagement acceptance or reappointment stage, audit evidence is the information that the auditor is to consider for the appointment. For examples, change in the entity control environment, inherent risk and nature of the entity business, and scope of audit work.

In the audit planning stage, audit evidence is the information that the auditor is to consider for the most effective and efficient audit approach. For examples, reliability of internal control procedures, and analytical review systems.

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In the control testing stage, audit evidence is the information that the auditor is to consider for the mix of audit test of control and audit substantive tests.

In the substantive testing stage, audit evidence is the information that the auditor is to make sure the appropriation of financial statement assertions. For examples, existence,rights and obligations, occurrence, completeness, valuation, measurement, presentation and disclosure of a particular transaction or account balance.

In the conclusion and opinion formulation stage, audit evidence is information that the auditor is to consider whether the financial statements as a whole presents with completeness, validity, accuracy and consistency with the auditor's understanding of the entity.

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INFORMATION TECHNOLOGY AUDIT

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WHAT IS IT AUDIT

An information technology audit, or information systems audit, is an examination of the management controls within an Information technology (IT) infrastructure.

The evaluation of obtained evidence determines if the information systems are safeguarding assets, maintaining data integrity, and operating effectively to achieve the organization's goals or objectives. These reviews may be performed in conjunction with a financial statement audit, internal audit, or other form of attestation engagement.

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IT audits are also known as "automated data processing (ADP) audits" and "computer audits". They were formerly called "electronic data processing (EDP) audits".

HISTORY OF IT AUDIT

The concept of IT auditing was formed in the mid-1960s. Since that time, IT auditing has gone through numerous changes, largely due to advances in technology and the incorporation of technology into business.

Currently, there are many IT dependent companies that rely on the Information Technology in order to operate their business e.g. Telecommunication or Banking company.

PURPOSE OF IT AUDIT An IT audit is different from a 

financial statement audit. While a financial audit's purpose is to evaluate whether an organization is adhering to standard accounting practices, the purposes of an IT audit are to evaluate the system's internal control design and effectiveness. This includes, but is not limited to, efficiency and security protocols, development processes, and IT governance or oversight.

. One of the most important role of the IT Audit is to audit over the critical system in order to support the Financial audit or to support the specific regulations announced e.g. SOX

PURPOSE OF IT AUDIT

Integrated information technology audit compliance,

Quality assurance, Business continuity, Disaster recovery, IT governance, Fraud, risk, and forensics resources for

information technology auditors, internal auditors, application auditors, compliance, information security and forensics professionals.

ROLE OF IT AUDIT

The IT audit aims to evaluate the following:

Will the organization's computer systems be available for the business at all times when required? (known as availability)

Will the information in the systems be disclosed only to authorized users? (known as security and confidentiality)

Will the information provided by the system always be accurate, reliable, and timely? (measures the integrity)

In this way, the audit hopes to assess the risk to the company's valuable asset (its information) and establish methods of minimizing those risks.

IT Audit process

The audit process is generally a ten-step procedure:

1. Notification & Request for Preliminary Information2. Planning3. Opening Meeting4. Fieldwork5. Communication6. Draft Report7. Management Responses8. Closing Meeting9. Report Distribution10.Follow-up

TYPES OF IT AUDIT Technological innovation process audit Innovative comparison audit Technological position auditfive categories of audits:

1. Systems and Applications2. Systems Development:3. Management of IT and Enterprise

Architecture:4. Client/Server, Telecommunications,

Intranets, and Extranets5. Information Processing Facilities:

Technological innovation process audit

This audit constructs a risk profile for existing and new projects. The audit will assess the length and depth of the company's experience in its chosen technologies, as well as its presence in relevant markets, the organization of each project, and the structure of the portion of the industry that deals with this project or product, organization and industry structure.

Innovative comparison audit

This audit is an analysis of the innovative abilities of the company being audited, in comparison to its competitors. This requires examination of company's research and development facilities, as well as its track record in actually producing new products.

Technological position audit: This audit reviews the technologies that the business currently has and that it needs to add. Technologies are characterized as being either "base", "key", "pacing" or "emerging".

FUNCTIONS IS TO BE CHECKED

Systems and Applications: An audit to verify that systems and applications are appropriate, are efficient, and are

adequately controlled to ensure valid, reliable, timely, and secure input, processing, and output at all levels of a

system's activity.Information Processing Facilities: An audit to verify that

the processing facility is controlled to ensure timely, accurate, and efficient processing of applications under

normal and potentially disruptive conditions.Systems Development: An audit to verify that the systems under development meet the objectives of the organization, and to ensure that the systems are developed in accordance with generally accepted standards for systems development.

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Management of IT and Enterprise Architecture: An audit to verify that IT management has developed an organizational structure and procedures to ensure a controlled and efficient environment for information processing.

Client/Server, Telecommunications, Intranets, and Extranets: An audit to verify that telecommunications controls are in place on the client (computer receiving services), server, and on the network connecting the clients and servers

DEEP DIVE IT AUDIT The deep dive audit involves detailed study of the IT

infrastructure deployed - hardware, software, connectivity, power, security, MIS, and usability by end users. Other areas of study include identifying process coverage, data integrity, productivity improvements, reporting frequency and adequacy, training adequacy, and system availability.

The focal points of the IT audit are: Business functionality Ease of Use SecurityThe capstone of Technology Audit is the Audit Findings Report

which includes gap analysis, recommendations pertaining to technology upgrade / downgrade, training requirements and plan of action. Technology Audit recommendation sets the direction for organizations to optimize Return of Investment on IT.

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IT Audit Role Advising the Audit Committee and

senior management on IT internal control issues

Performing IT Risk Assessments Performing:

Institutional Risk Area Audits General Controls Audits Application Controls Audits Technical IT Controls Audits Internal Controls advisors during

systems development and analysis activities.

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The Changing Face of IT Audit

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The Changing Role of the IT Auditor

IT Audit plays a major role in development of IT Governance framework

Moving away from policing role into a specialist role in the areas of risks and control

Adding value at strategic and operational levels through the provision of business risk-focused advice and assurance

Legislation is having a profound impact on IT Auditing (SOx, GLBA, HIPAA, FERPA, Privacy Notification Regulations …)

The continuously changing technology environment brings new risks (i.e. Cyber security, wireless …)

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Emerging & Prevalent IT Audit Issues

Inadequate or Lack of Management Oversight Poor Segregation of Duties Inadequate or Lack of Supporting Documentation No Business Continuity/Disaster Recovery Plan Change Management Data Security Data Loss Incidents

There are also new audits being imposed by various standard boards which are required to be performed, depending upon the audited organization, which will affect IT and ensure that IT departments are performing certain functions and controls appropriately to be considered compliant. An example of such an audit is the newly minted SSAE 16February 14, 2007

THANK YOU ALL