System-based auditing is a technique whereby the
auditors review, the operation of internal control procedure within the
client’s accounting system.
auditors review, the operation of internal control procedure within the
client’s accounting system.
The objective is to gather sufficient appropriate
audit evidence to demonstrate that the controls are functioning well enough to
give the auditors confidence that
audit evidence to demonstrate that the controls are functioning well enough to
give the auditors confidence that
they will discover any material error or misstatement
which might affect the financial reports.
System-based auditing was, at one time, the
universally accepted method of carrying out audit work, but auditors are
increasingly adopting a business risk-based approach. We will look at this in
the next chapter.
universally accepted method of carrying out audit work, but auditors are
increasingly adopting a business risk-based approach. We will look at this in
the next chapter.
Students should familiarize themselves with the
principles of systems-based auditing because;
principles of systems-based auditing because;
·
It is
still tested in examinations and is likely to be for the foreseeable future.
It is
still tested in examinations and is likely to be for the foreseeable future.
·
At some
point-even using risk-bases techniques – some investigation of the reliability
of internal controls has to be carried out.
At some
point-even using risk-bases techniques – some investigation of the reliability
of internal controls has to be carried out.
·
Auditors
should develop the skills of understanding financial systems in order to
identify areas of potential problems and studying systems-based auditing is a
good way to develop that understanding
Auditors
should develop the skills of understanding financial systems in order to
identify areas of potential problems and studying systems-based auditing is a
good way to develop that understanding
In this chapter we look at the system-based
approach to the most common processing cycles which are tested by examiners.
approach to the most common processing cycles which are tested by examiners.
These are:
·
Purchase
and creditors;
Purchase
and creditors;
·
Sales and
debtors;
Sales and
debtors;
·
Wages
Wages
This piece will pull together the internal controls
outlined, the assertions and will provide a list of tests whereby internal
controls can be evaluated.
outlined, the assertions and will provide a list of tests whereby internal
controls can be evaluated.
It is important for student to relate the audit
tests described to the internal controls and the Assertions so that a proper
understanding of systems-based auditing can be obtained.
tests described to the internal controls and the Assertions so that a proper
understanding of systems-based auditing can be obtained.
Students will, however, also need to refer to later
chapters where we look specifically at testing balance sheet items because,
whether the audit approaches are systems-or risk-based, the balance sheet still
needs to be verified by substantive testing at some level.
chapters where we look specifically at testing balance sheet items because,
whether the audit approaches are systems-or risk-based, the balance sheet still
needs to be verified by substantive testing at some level.
