CISA Review Course CHAPTER 1 THE IS AUDIT PROCESS€¦ · 2 2007 CISA® Review Course ©2007 ISACA. All rights reserved. Chap 1 - Pag - 3 Chapter Overview 1. Introduction • Organization

1

2007 CISA® Review Course ©2007 ISACA. All rights reserved. www.isaca.org Chap 1 - Pag - 1

ISACA ISACA ®®The recognized globalThe recognized global

leaders in IT governance,leaders in IT governance,control and assurancecontrol and assurance


2007 CISA® Review CourseCHAPTER 1

THE IS AUDIT PROCESS

2


Chapter Overview1. Introduction

• Organization of the IS audit function• IS audit resource management• Audit planning • Laws and regulations

2. ISACA IS auditing standards and guidelines3. Risk analysis4. Internal controls5. Performing an IS audit6. Control self assessment 7. Emerging changes in IS audit process8. Case Study


Process Area Objective

Ensure that the CISA candidate…

“Has the knowledge necessary to provide information systems (IS) audit services in accordance with IS audit standards, guidelines and best practices to assist the organization in ensuring that its information technology and business systems are protected and controlled.”

3


Process Area Summary

According to the CISA Certification Board, this process area will represent approximately 10% of the CISA examination (approximately 20 questions).


Process Area Tasks1. Develop and implement a risk-based IS audit strategy for the

organization in compliance with IS audit standards, guidelines and best practices

2. Plan specific audits to ensure that IT and business systems are protected and controlled

3. Conduct audits in accordance with IS audit standards, guidelines and best practices to meet planned audit objectives

4. Communicate emerging issues, potential risks and audit results to key stakeholders

5. Advise on the implementation of risk management and control practices within the organization while maintaining independence

4


Process Area Knowledge Statements

1. Knowledge of ISACA IS Auditing Standards, Guidelines and Procedures and Code of Professional Ethics

2. Knowledge of IS auditing practices and techniques3. Knowledge of techniques to gather information and

preserve evidence4. Knowledge of the evidence life cycle 5. Knowledge of control objectives and controls related

to IS


Process Area Knowledge Statements (continued)

6. Knowledge of risk assessment in an audit context 7. Knowledge of audit planning and management

techniques 8. Knowledge of reporting and communication

techniques 9. Knowledge of control self-assessment (CSA) 10. Knowledge of continuous audit techniques

5


1 – INTRODUCTION1.1.1 Organization of the IS Audit Function

• Audit Charter (or engagement letter)– Stating management’s responsibility and

objectives for, and delegation of authority to, the IS audit function

– Outlining the overall authority, scope and responsibilities of the audit function

• Approval of the audit charter• Change in the audit charter

2007 CISA® Review Course ©2007 ISACA. All rights reserved. www.isaca.org Chap 1 - Pag -10

1 – INTRODUCTION1.1.2 IS Audit Resource Management

• Limited number of IS auditors• Maintenance of their technical

competence• Assignment of audit staff

6


1.1.3 Audit PlanningAudit Planning• Short-term planning• Long-term planning• Things to consider

– New control issues– Changing technologies– Changing business processes– Enhanced evaluation techniques

Individual Audit Planning• Understanding of overall environment

– Business practices and functions– Information systems and technology

1 – INTRODUCTION


1.1.3 Audit Planning (continued) Audit Planning Steps

• Gain an understanding of the business’s mission, objectives, purpose and processes.

• Identify stated contents (policies, standards, guidelines, procedures, and organization structure).

• Evaluate risk assessment and privacy impact analysis.• Perform a risk analysis.• Conduct an internal control review.• Set the audit scope and audit objectives.• Develop the audit approach or audit strategy.• Assign personnel resources to audit and address engagement

logistics.

1 – INTRODUCTION

7


1.1.4 Effect of Laws and Regulations on IS Audit Planning

Regulatory Requirements• Establishment• Organization• Responsibilities• Correlation to financial, operational and IT audit

functions

1 – INTRODUCTION


1.1.4. Effect of Laws and Regulations on IS Audit Planning (continued)

Steps to determine compliance with externalrequirements

• Identify external requirements• Document pertinent laws and regulations• Assess whether management and the IS function have

considered the relevant external requirements• Review internal IS department documents that address

adherence to applicable laws• Determine adherence to established procedures

1 – INTRODUCTION

8


2 – ISACA IS Auditing Standards and Guidelines

1.2.1 ISACA Code of Professional Ethics

The Association’s Code of Professional Ethics provides guidance for the professional and personal conduct of members of the Association and/or holders of the CISA and CISM designation



Framework for the ISACA IS Auditing Standards

• Standards• Guidelines• Procedures

9



1.2.2. ISACA IS Auditing Standards

Objectives of ISACA IS Auditing Standards• Inform management and other interested parties of

the profession’s expectations concerning the work of audit practitioners

• Inform information system auditors of the minimum level of acceptable performance required to meet professional responsibilities set out in the ISACA Code of Professional Ethics



1.2.2 ISACA IS Auditing Standards (continued)

1. Audit charter

2. Independence

3. Ethics and Standards

4. Competence

5. Planning

6. Performance of audit work

7. Reporting

8. Follow-up activities

9. Irregularities and illegal acts

10. IT governance

11. Use of risk assessment in audit planning

10




Audit Charter

• Purpose, responsibility, authority and accountability

• Approval

Independence

• Professional independence

• Organizational independence




Professional Ethics and Standards

• Code of Professional Ethics

• Due professional care

Competence

• Skills and knowledge

• Continuing professional education

11


Planning

• Plan IS audit coverage

• Develop and document a risk-based audit approach

• Develop and document an audit plan

• Develop an audit program and procedures






Performance of Audit Work

• Supervision

• Evidence

• Documentation

12




Reporting• Identify the organization, intended recipients and any restrictions

• State the scope, objectives, coverage and nature of audit work performed

• State the findings, conclusions and recommendations and limitations

• Justify the results reports

• Be signed, dated and distributed according to the audit charter




Follow-up Activities

• Review previous conclusions and recommendations

• Review previous relevant findings

• Determine whether appropriate actions have been taken by management in a timely manner

13




Irregularities and Illegal Acts• Consider the risk of irregularities and illegal acts

• Maintain an attitude of professional skepticism

• Obtain an understanding of the organization and its environment

• Consider unusual or unexpected relationships

• Test the appropriateness of internal control

• Assess any misstatement




Irregularities and Illegal Acts (continued)• Obtain written representations from management

• Have knowledge of any allegations of irregularities or illegal acts

• Communicate material irregularities or illegal acts

• Consider appropriate action in case of inability to continue performing the audit

• Document irregularity- or illegal act-related communications, planning, results, evaluations and conclusions

14




IT Governance

• Review and assess the IS function’s alignment with the organization’s mission, vision, values, objectives and strategies

• Review the IS function’s statement about the performance and assess its achievement

• Review and assess the effectiveness of IS resource and performance management processes




IT Governance (continued)• Review and assess compliance with legal, environmental and

information quality, and fiduciary and security requirements

• Use a risk-based approach to evaluate the IS function

• Review and assess the organization’s control environment

• Review and assess the risks that may adversely affect the IS environment

15




Use of Risk Assessment in Audit Planning

• Use a risk assessment technique in developing the overall IS audit plan

• Identify and assess relevant risks in planning individual reviews


1.2.3 ISACA IS Auditing Guidelines

G1 - Using the Work of Other Auditors, effective 1 June 1998G2 - Audit Evidence Requirement, effective 1 December 1998G3 - Use of Computer Assisted Audit Techniques (CAATs), effective

1 December 1998G4 - Outsourcing of IS Activities to Other Organizations, effective 1

September 1999G5 - Audit Charter, effective 1 September 1999G6 - Materiality Concepts for Auditing Information Systems, effective

1 September 1999G7 - Due Professional Care, effective 1 September 1999G8 - Audit Documentation, effective 1 September 1999G9 - Audit Considerations for Irregularities, effective 1 March 2000G10 - Audit Sampling, effective 1 March 2000


16


G11 - Effect of Pervasive IS Controls, effective 1 March 2000G12 - Organizational Relationship and Independence, effective

September 2000G13 - Use of Risk Assessment in Audit Planning, effective 1 September

2000G14 - Application Systems Review, effective 1 November 2001G15 - Planning Revised, effective 1 March 2002G16 - Effect of Third Parties on an Organization’s IT Controls, effective

1 March 2002G17 - Effect of Non-audit Role on the IS Auditor’s Independence,

effective 1 July 2002G18 - IT Governance, effective 1 July 2002G19 - Irregularities and Illegal Acts, effective 1 July 2002


1.2.3 ISACA IS Auditing Guidelines (continued)


G20 - Reporting, effective 1 January 2003G21 - Enterprise Resource Planning (ERP) Systems Review,

effective 1 August 2003G22 - Business-to-consumer (B2C) E-commerce Review, effective 1

August 2003G23 - System Development Life Cycle (SDLC) Review, effective 1

August 2003G24 - Internet Banking, effective 1 August 2003G25 - Review of Virtual Private Networks, effective 1 July 2004G26 - Business Process Reengineering (BPR) Project Reviews,

effective 1 July 2004G27 - Mobile Computing, effective 1 September 2004



17


G28 - Computer Forensics, effective 1 September 2004G29 - Post-implementation Review, effective 1 January 2005G30 - Competence, effective 1 June 2005G31 - Privacy, effective 1 June 2005G32 - Business Continuity Plan (BCP) Review From IT Perspective,

effective 1 September 2005G33 - General Considerations on the Use of the Internet, effective 1

March 2006G34 - Responsibility, Authority and Accountability, effective 1 March

2006G35 - Follow-up Activities, effective 1 March 2006




1.2.4 ISACA IS Auditing Procedures

Procedures developed by the ISACA Standards Board provide examples of possible processes an IS auditor might follow in an audit engagement.

• Procedures developed by the ISACA Standards Board provide examples

• The IS auditor should apply their own professional judgment to the specific circumstances


18


P1 - IS Risk Assessment, effective 1 July 2002P2 - Digital Signatures, effective 1 July 2002P3 - Intrusion Detection, effective 1 August 2003P4 - Viruses and Other Malicious Code, effective 1 August 2003P5 - Control Risk Self-assessment, effective 1 August 2003P6 - Firewalls, effective 1 August 2003P7 - Irregularities and Illegal Acts, effective 1 November 2003P8 - Security Assessment—Penetration Testing and Vulnerability

Analysis, effective 1 September 2004P9 - Evaluation of Management Controls Over Encryption

Methodologies, effective 1 January 2005


1.2.4 ISACA IS Auditing Procedures (continued)


Standards • Must be followed by IS auditors

Guidelines • Provide assistance on how to implement the

standardsProcedures

• Provide examples for implementing the standards


1.2.5 Relationship Among Standards, Guidelines and Procedures

19


3 – Risk Analysis

Definition of RiskThe potential that a given threat will exploit vulnerabilities of an asset or group of assets to cause loss or damage to the assets. The impact or relative severity of the risk is proportional to the business value of the loss/damage and to the estimated frequency of the threat.


3 – Risk Analysis

Elements of Risk

• Threats to, and vulnerabilities of, processes and/or assets (including both physical and information assets)

• Impact on assets based on threats and vulnerabilities

• Probabilities of threats (combination of the likelihood and frequency of occurrence)

20


3 – Risk Analysis

Risk and Audit PlanningRisk analysis is part of the audit planning and it helps identify risks and vulnerabilities so the auditor can determine the controls needed to mitigate those risks.


Risk Management Process

• Risk assessment

• Risk mitigation

• Risk reevaluation

3 – Risk Analysis

21


4 – Internal Controls

• Classification of Internal Controls

– Preventive controls

– Detective controls

– Corrective controls

• Policies, procedures, practices and organizational structures implemented to reduce risks


1.4.1. Internal Control Objectives

Internal Control System

• Internal accounting controls• Operational controls• Administrative controls


22


Internal Control Objectives

• Safeguarding of IT assets• Compliance to corporate policies or legal requirements• Input• Authorization• Accuracy and completeness of processing of data input/transactions• Output• Reliability of process• Backup/recovery• Efficiency and economy of operations• Change management process for IT and related systems

4 – Internal Controls1.4.1. Internal Control Objectives (continued)


1.4.2 IS Control Objectives

Internal control objectives apply to all areas, whether manual or automated. Therefore, conceptually, control objectives in an IS environment remain unchanged from those of a manual environment


23


4 – Internal Controls1.4.2 IS Control Objectives (continued)

• Safeguarding assets • Assuring the integrity of general operating system

environments • Assuring the integrity of sensitive and critical application

system environments through:– Authorization of the input– Accuracy and completeness of processing of

transactions– Reliability of overall information processing activities– Accuracy, completeness and security of the output– Database integrity


• Ensuring the efficiency and effectiveness of operations

• Complying with requirements, policies and procedures, and applicable laws

• Developing business continuity and disaster recovery plans

• Developing an incident response plan

4 – Internal Controls1.4.2 IS Control Objectives (continued)

24


1.4.3 COBIT

• A framework with 34 high-level control objectives

– Planning and organization

– Acquisition and implementation

– Delivery and support

– Monitoring and evaluation

• Use of 36 major IT-related standards and regulations



1.4.4 General Control Procedures

Apply to all areas of an organization and include policies and practices established by management to provide reasonable assurance that specific objectives will be achieved.


25


• Internal accounting controls directed at accounting operations• Operational controls concerned with the day-to-day operations• Administrative controls concerned with operational efficiency

and adherence to management policies• Organizational logical security policies and procedures • Overall policies for the design and use of documents and

records • Procedures and features to ensure authorized access to

assets • Physical security policies for all data centers

4 – Internal Controls1.4.4 General Control Procedures (continued)


1.4.5 IS Control Procedures

• Strategy and direction• General organization and management• Access to data and programs• Systems development methodologies and change control• Data processing operations• Systems programming and technical support functions• Data processing quality assurance procedures• Physical access controls• Business continuity/disaster recovery planning• Networks and communications• Database administration


26


Definition of AuditingSystematic process by which a competent, independent person objectively obtains and evaluates evidence regarding assertions about an economic entity or event for the purpose of forming an opinion about and reporting on the degree to which the assertionconforms to an identified set of standards.

Definition of IS AuditingAny audit that encompasses review and evaluation (wholly or partly) of automated information processing systems, related non-automated processes and the interfaces between them.

5 – Performing an IS Audit


1.5.1 Classification of Audits

• Financial audits• Operational audits• Integrated audits • Administrative audits• Information systems audits• Specialized audits• Forensic audits


27


5 – Performing an IS Audit1.5.2 Audit Programs

• Based on the scope and the objective of the particular assignment

• IS auditor’s perspectives

– Security (confidentiality, integrity and availability)

– Quality (effectiveness, efficiency)

– Fiduciary (compliance, reliability)

– Service and Capacity


5 – Performing an IS Audit1.5.2 Audit Programs (continued)

General Audit Procedures• Understanding of the audit area/subject• Risk assessment and general audit plan• Detailed audit planning• Preliminary review of audit area/subject• Evaluating audit area/subject• Compliance testing • Substantive testing• Reporting(communicating results)• Follow-up

28


Procedures for Testing and Evaluating IS Controls• Use of generalized audit software to survey the contents of

data files • Use of specialized software to assess the contents of

operating system parameter files• Flow-charting techniques for documenting automated

applications and business process• Use of audit reports available in operation systems• Documentation review• Observation

5 – Performing an IS Audit1.5.2 Audit Programs (continued)


5 – Performing an IS Audit1.5.3 Audit Methodology

• A set of documented audit procedures designed to achieve planned audit objectives

• Composed of – Statement of scope– Statement of audit objectives– Statement of work programs

• Set up and approved by the audit management• Communicated to all audit staff

29


Typical Audit Phases1. Audit subject

• Identify the area to be audited

2. Audit objective

• Identify the purpose of the audit

3. Audit scope

• Identify the specific systems, function or unit of the organization

5 – Performing an IS Audit1.5.3 Audit Methodology (continued)



Typical Audit Phases (continued)4. Pre-audit planning

• Identify technical skills and resources needed

• Identify the sources of information for test or review

• Identify locations or facilities to be audited

30



Typical Audit Phases (continued)5. Audit procedures and steps for data gathering

• Identify and select the audit approach

• Identify a list of individuals to interview

• Identify and obtain departmental policies, standards and guidelines

• Develop audit tools and methodology



Typical Audit Phases (continued)6. Procedures for evaluating test/review result

7. Procedures for communication

8. Audit report preparation

• Identify follow-up review procedures

• Identify procedures to evaluate/test operational efficiency and effectiveness

• Identify procedures to test controls

• Review and evaluate the soundness of documents, policies and procedures

31


What is documented in workpapers (WPs)?

• Audit plans

• Audit programs

• Audit activities

• Audit tests

• Audit findings and incidents

1.5.3 Audit Methodology (continued)5 – Performing an IS Audit


• Workpapers do not have to be on “paper”• Workpapers must be

– Dated– Initialized– Page-numbered– Relevant– Complete– Clear– Self-contained and properly labeled– Filed and kept in custody


32


1.5.4 Fraud Detection5 – Performing an IS Audit

• Management’s responsibility

• Benefits of a well-designed internal control system

– Deterring frauds at the first instance

– Detecting frauds in a timely manner

• Fraud detection and disclosure

• Auditor’s role in fraud prevention and detection


5 – Performing an IS Audit1.5.5 Audit Risk and Materiality

Audit Risk• Audit risk is the risk that the information/financial report

may contain material error that may go undetected during the audit.

• A risk-based audit approach is used to assess risk and assist with an IS auditor’s decision to perform either compliance or substantive testing.

33


Audit Risks - Categories• Inherent risk• Control risk• Detection risk• Overall audit risk

5 – Performing an IS Audit1.5.5 Audit Risk and Materiality (continued)


Risk-based Approach Overview

• Gather Information and Plan• Obtain Understanding of Internal Control• Perform Compliance Tests• Perform Substantive Tests• Conclude the Audit

5 – Performing an IS Audit1.5.5 Audit Risk and Materiality (continued)

34


1.5.5 Audit Risk and Materiality (continued)5 – Performing an IS Audit

MaterialityAn auditing concept regarding the importance of an item of information with regard to its impact or effect on the functioning of the entity being audited


5 – Performing an IS Audit1.5.6 Risk Assessment Techniques

Risk Assessment Techniques• Enables management to effectively allocate limited

audit resources

• Ensures that relevant information has been obtained

• Establishes a basis for effectively managing the audit department

• Provides a summary of how the individual audit subject is related to the overall organization and to business plans

35


5 – Performing an IS Audit1.5.7 Audit Objectives

Audit Objectives - Specific Goals of the Audit• Compliance with legal and regulatory requirements

• Confidentiality

• Integrity

• Reliability

• Availability


1.5.8 Compliance vs. Substantive Testing5 – Performing an IS Audit

• Compliance Test– Determines whether controls are in compliance with

management policies and procedures

• Substantive Test– Tests the integrity of actual processing

• Correlation between the level of internal controls and substantive testing required

• Relationship between compliance and substantive tests

36


5 – Performing an IS Audit1.5.9 Evidence

It is a requirement that the auditor’s conclusions must be based on sufficient, competent evidence

• Independence of the provider of the evidence

• Qualification of the individual providing the

information or evidence

• Objectivity of the evidence

• Timing of evidence


Techniques for gathering evidence:• Review IS organization structures• Review IS policies and procedures • Review IS standards• Review IS documentation • Interview appropriate personnel• Observe processes and employee performance

5 – Performing an IS Audit1.5.9 Evidence (continued)

37



• Actual functions

• Actual processes/procedures

• Security awareness

• Reporting relationships

1.5.10 Interviewing and Observing Personnel in action


5 – Performing an IS Audit1.5.11 Sampling

• General approaches to audit sampling– Statistical sampling– Non-statistical sampling

• Methods of sampling used by auditors– Attribute sampling– Variable sampling

38


• Attribute Sampling– Stop-or-go sampling– Discovery sampling

• Variable Sampling– Stratified mean per unit– Unstratified mean per unit– Difference estimation

5 – Performing an IS Audit1.5.11 Sampling (continued)


Statistical Sampling Terms• Confident coefficient• Level of risk• Precision• Expected error rate• Sample mean• Sample standard deviation• Tolerable error rate• Population standard deviation

5 – Performing an IS Audit1.5.11 Sampling (continued)

39


Key Steps in Choosing a Sample• Determine the objectives of the test

• Define the population to be sampled

• Determine the sampling method, such as attribute versus variable sampling.

• Calculate the sample size

• Select the sample

• Evaluating the sample from an audit perspective

1.5.11 Sampling (continued)5 – Performing an IS Audit


5 – Performing an IS Audit1.5.12 Using the Services of Other

Auditors and ExpertsConsiderations when using services of other auditors and experts• Restrictions on outsourcing of audit/security services provided by laws

and regulations

• Audit charter or contractual stipulations

• Impact on overall and specific IS audit objectives

• Impact on IS audit risk and professional liability

• Independence and objectivity of other auditors and experts

• Professional competence, qualifications and experience

40


Considerations when using services of other auditors and experts (continued)

• Scope of work proposed to be outsourced and approach

• Supervisory and audit management controls

• Method and modalities of communication of results of audit work

• Compliance with legal and regulatory stipulations

• Compliance with applicable professional standards

5 – Performing an IS Audit1.5.12 Using the Services of Other Auditors and Experts (continued)


5 – Performing an IS Audit1.5.13 Computer-assisted Audit Techniques

• CAATs enable IS auditors to gather information independently

• CAATs include:– Generalized audit software (GAS)– Utility software– Test data– Application software for continuous online audits– Audit expert systems

41


– Need for CAATs

• Evidence collection

– Functional capabilities

• Functions supported

• Areas of concern

1.5.13 Computer-assisted Audit Techniques (continued)



5 – Performing an IS Audit1.5.13 Computer-assisted Audit

Techniques (continued)

Examples of CAATs used to collect evidence

• Generalized audit software

• ACL, IDEA, etc.

• Utility software

• SQL commands

42




CAATs as a continuous online approach

• Advantages of CAATs

• Cost/benefits of CAATs


Development of CAATs• Documentation retention

• Access to production data

• Data manipulation



43


5 – Performing an IS Audit1.5.14 Evaluation of Audit Strengths and

Weaknesses

• Assess evidence

• Evaluate overall control structure

• Evaluate control procedures

• Assess control strengths and weaknesses


Judging Materiality of Findings

• Materiality is a key issue

• Assessment requires judgment of the potential effect of the finding if corrective action is not taken

5 – Performing an IS Audit1.5.14 Evaluation of Audit Strengths and

Weaknesses (continued)

44


1.5.15 Communicating Audit Results5 – Performing an IS Audit

• Exit Interview– Correct facts

– Realistic recommendations

– Implementation dates for agreed recommendations

• Presentation Techniques– Executive summary

– Visual presentation


Audit Report Structure and Contents

• An introduction to the report• The IS auditor’s overall conclusion and opinion • The IS auditor’s reservations with respect to the audit• Detailed audit findings and recommendations • A variety of findings• Limitations to audit• Statement on the IS audit guidelines followed

5 – Performing an IS Audit1.5.15 Communicating Audit Results (continued)

45


1.5.16 Management Implementation of Recommendations


• Auditing is an ongoing process

• Timing of follow-up


1.5.17 Audit Documentation5 – Performing an IS Audit

• Contents of audit documentation

• Custody of audit documentation

• Support of findings and conclusions

46


Documentation should include, at a minimum, a record of the:

• Planning and preparation of the audit scope and objectives

• Description and/or walkthroughs on the scoped audit area

• Audit program

• Audit steps performed and audit evidence gathered

• Use of services of other auditors and experts

• Audit findings, conclusions and recommendations

1.5.17 Audit Documentation (continued)5 – Performing an IS Audit


• Constraints on the Conduct of the Audit– Availability of audit staff

– Auditee constraints

• Project Management Techniques– Develop a detailed plan

– Report project activity against the plan

– Adjust the plan

– Take corrective action

5 – Performing an IS Audit1.5.17 Audit Documentation (continued)

47


1. In performing a risk-based audit, which risk assessment is completed initially by the IS auditor?

A. Detection risk assessmentB. Control risk assessmentC. Inherent risk assessmentD. Fraud risk assessment

5 – Performing an IS AuditChapter 1 Questions


5 – Performing an IS AuditChapter 1 Questions (continued)

2. Which of the following types of risk assumes an absence of compensating controls in the area being reviewed?

A. Control riskB. Detection riskC. Inherent riskD. Sampling risk

48


3. While developing a risk-based audit program, which of the following would the IS auditor MOST likely focus on?

A. Business processesB. Critical IT applicationsC. Operational controlsD. Business strategies



4. The GREATEST drawback in using an integrated test facility is the need to:

A. Isolate test data from production dataB. Notify user personnel so they can make adjustments

to outputC. Segregate specific master file recordsD. Collect transaction and master file records in a

separate file


49



5. To meet predefined criteria, which of the following continuous audit techniques would BEST identifytransactions to audit?

A. Systems Control Audit Review File and Embedded Audit Modules (SCARF/EAM)

B. Continuous and intermittent simulation (CIS)C. Integrated test facilities (ITF)D. Audit hooks


6. Which of the following BEST describes the early stages of an IS audit?

A. Observing key organizational facilitiesB. Assessing the IS environmentC. Understanding business process and

environment applicable to the reviewD. Reviewing prior IS audit reports


50


7. An IS auditor is conducting substantive audit tests of a new accounts receivable module. The IS auditor has a tight schedule and limited computer expertise. Which would be the BEST audit technique to use in this situation?

A. Test dataB. Parallel simulationC. Integrated test facilityD. Embedded audit module



8. The PRIMARY use of generalized auditsoftware (GAS) is to:

A. Test controls embedded in programsB. Test unauthorized access to dataC. Extract data of relevance to the auditD. Reduce the need for transaction vouching


51



9. An IS auditor performing a review of an application’s controls finds a weakness in system software that couldmaterially impact the application. The IS auditor should:

A. Disregard these control weaknesses, as a system softwarereview is beyond the scope of this review

B. Conduct a detailed system software review and report thecontrol weaknesses

C. Include in the report a statement that the audit was limited to a review of the application’s controls

D. Review the system software controls as relevant and recommend a detailed system software review


6 – Control Self-Assessment

• A management technique• A methodology• In practice, a series of tools

52


Implementation of CSA• Facilitated workshops • Hybrid approach



1.6.1 Benefits of CSA

•Early detection of risks

•More effective and improved internal controls

•Creation of cohesive teams through employee involvement

•Increased employee awareness of organizational objectives

and knowledge of risk and internal controls

•Increased communication between operational and top

management

•Highly motivated employees


53


• Improved audit rating process

• Reduction in control cost

• Assurance provided to stakeholders and customers

• Necessary assurance given to top management about the adequacy of internal controls, as required by the various regulatory agencies and laws such as the US Sarbanes-Oxley Act

1.6.1 Benefits of CSA (continued)6 – Control Self-Assessment


1.6.2 Disadvantages of CSA

• It could be mistaken as an audit function replacement

• It may be regarded as an additional workload (e.g., one more report to be submitted to management)

• Failure to act on improvement suggestions could damage employee morale

• Lack of motivation may limit effectiveness in the detection of weak controls


54


Objectives of CSA

• Enhancement of audit responsibilities (not a replacement)

• Education for line management in control responsibility and monitoring

• Empowerment of workers to assess the control environment



1.6.3 Auditor Role in CSA

When these programs are established, auditors become

• Internal control professionals • Assessment facilitators

• The auditors are facilitators

• The management client is the participant in the CSA process


55


1.6.4 Technology Drivers for CSA

Some technology drivers include• Combination of hardware and software to support CSA selection

• Use of an electronic meeting system

• Computer-supported decision aids to facilitate group decision making

• Group decision making is an essential component of a workshop-based CSA where employee empowerment is a goal



1.6.5 Traditional vs. CSA Approach6 – Control Self-Assessment

Traditional Approach• Any approach in which the primary responsibility for analyzing and reporting on internal control and risk is assigned to auditors and, to a lesser extent, controller departments and outside consultants.

CSA Approach• Emphasizes management and accountability over developing and monitoring internal controls of an organization’s sensitive and critical business processes.

56


10. Which of the following is MOST effective for implementing a control self-assessment (CSA) within business units?

A. Informal peer reviewsB. Facilitated workshopsC. Process flow narrativesD. Data flow diagrams

Chapter 1 Questions (continued)6 – Control Self-Assessment


7 – Emerging changes in the IS audit process

1.7.1 Automated Work papers

• Risk analysis• Audit programs• Results• Test evidences,• Conclusions• Reports and other complementary

information

57


Controls over automated work papers:• Access to work papers• Audit trails• Approvals of audit phases• Security and integrity controls• Backup and restoration• Encryption for confidentiality


1.7.1 Automated Work papers (continued)


1.7.2 Integrated Auditing


Process whereby appropriate audit disciplines are combined to assess key internal controls over an operation, process or entity

• Focuses on risk to the organization (for an internal auditor)

• Focuses on the risk of providing an incorrect or misleading audit opinion (for an external auditor)

58


Typical Process

• Identification of relevant key controls• Review and understanding of the design of key

controls• Testing that key controls are supported by the IT

system• Testing that management controls operate effectively• A combined report or opinion on control risks, design

and weaknesses

1.7.2 Integrated Auditing (continued)



1.7.3 Continuous Auditing

A methodology that enables independent auditors to provide written assurance on a subject matter using a series of auditors’ reports issued simultaneously with, or a short period of time after, the occurrence of events underlying the subject matter


59


• Distinctive character– Short time lapse between the facts to be audited and the

collection of evidence and audit reporting

• Drivers– Better monitoring of financial issues– Allowing real-time transactions to benefit from real-time

monitoring– Preventing financial fiascoes and audit scandals– Using software to determine proper financial controls


1.7.3 Continuous Auditing (continued)


Continuous Auditing vs. Continuous Monitoring

• Continuous monitoring– Management-driven– Based on automated procedures to meet fiduciary

responsibilities

• Continuous auditing– Audit-driven– Done using automated audit procedures



60


Enabler for the Application of Continuous Auditing

• New information technology developments

• Increased processing capabilities

• Standards

• Artificial intelligence tools




IT techniques in a continuous auditing environment• Transaction logging• Query tools• Statistics and data analysis (CAAT)• Database management systems (DBMS)• Data warehouses, data marts, data mining.• Artificial intelligence (AI)• Embedded audit modules (EAM)• Neural network technology• Standards such as Extensible Business Reporting Language



61


Prerequisites• A high degree of automation• An automated and reliable information-producing process• Alarm triggers to report control failures• Implementation of automated audit tools• Quickly informing IS auditors of anomalies/errors• Timely issuance of automated audit reports• Technically proficient IS auditors• Availability of reliable sources of evidence• Adherence to materiality guidelines• Change of IS auditors’ mind-set• Evaluation of cost factors




• Advantages– Instant capture of internal control problems– Reduction of intrinsic audit inefficiencies

• Disadvantages– Difficulty in implementation– High cost– Elimination of auditors’ personal judgment and

evaluation



62


8 – Chapter 1 Case Study ScenarioThe IS auditor has been asked to perform preliminary work that will assess the readiness of the organization for a review to measure compliance with new regulatory requirements. These requirements are designed to ensure that management is taking an active role in setting up and maintaining a well-controlled environment and, accordingly, will assess management’s review and testing of the general IT control environment. Areas to be assessed include logical and physical security, change management, production control and network management, IT governance, and end-user computing. The IS auditor has been given six months to perform this preliminary work, so sufficient time should be available. It should be noted that in previous years, repeated problems have been identified in the areas of logical security and change management, so these areas will most likely require some degree of remediation. Logical security deficiencies noted included the sharing of administrator accounts and failure to enforce adequate controls over passwords. Change management deficiencies included improper segregation of incompatible duties and failure to document all changes. Additionally, the process for deploying operating system updates to servers was found to be only partially effective. In anticipation of the work to be performed by the IS auditor, the chief information officer (CIO) requested direct reports to develop narratives and process flows describing the major activities for which IT is responsible. These were completed, approved by the various process owners and the CIO, and then forwarded to the IS auditor for examination.


1.8.2 Case Study Questions8 – Chapter 1 Case Study Scenario

1. What should the IS auditor do FIRST?

A. Perform an IT risk assessmentB. Perform a survey audit of logical access controlsC. Revise the audit plan to focus on risk-based

auditingD. Begin testing controls that the IS auditor feels are

most critical

63


1.8.2 Case Study Questions (continued)8 – Chapter 1 Case Study Scenario

2. When testing program change management, how should the sample be selected?

A. Change management documents should be selected at random and examined for appropriateness

B. Changes to production code should be sampled and traced to appropriate authorizing documentation

C. Change management documents should be selected based on system criticality and examined for appropriateness

D. Changes to production code should be sampled and traced back to system-produced logs indicating the date and time of the change

Documents

CISA Review Course CHAPTER 1 THE IS AUDIT PROCESS€¦ · 2 2007 CISA® Review Course ©2007 ISACA. All rights reserved. Chap 1 - Pag - 3 Chapter Overview 1. Introduction • Organization