Is Audit Process Wiki

8/3/2019 Is Audit Process Wiki

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An information system (IS) audit or information technology(IT) audit is an examination

of the controls within an entity's Information technology infrastructure. These reviews

may be performed in conjunction with a financial statement audit, internal audit, or otherform of attestation engagement. It is the process of collecting and evaluating evidence of

an organization's information systems, practices, and operations. Obtained evidence

evaluation can ensure whether the organization's information systems safeguard assets,maintains data integrity, and are operating effectively and efficiently to achieve the

organization's goals or objectives.

An IS audit is not entirely similar to a financial statement audit. An evaluation of internal

controls may or may not take place in an IS audit. Reliance on internal controls is aunique characteristic of a financial audit. An evaluation of internal controls is necessary

in a financial audit, in order to allow the auditor to place reliance on the internal controls,

and therefore, substantially reduce the amount of testing necessary to form an opinionregarding the financial statements of the company. An IS audit, on the other hand, tends

to focus on determining risks that are relevant to information assets, and in assessing

controls in order to reduce or mitigate these risks. An IT audit may take the form of a"general control review" or an "specific control review". Regarding the protection ofinformation assets, one purpose of an IS audit is to review and evaluate an organization's

information system's availability, confidentiality, and integrity by answering the

following questions:

1. Will the organization's computerized systems be available for the business at all

times when required? (Availability)

2. Will the information in the systems be disclosed only to authorized users?

(Confidentiality)3. Will the information provided by the system always be accurate, reliable, and

timely? (Integrity).

The performance of an IS Audit covers several facets of the financial and organizational

functions of our Clients. The diagram to the right gives you an overview of theInformation Systems Audit flow: From Financial Statements to the Control Environment

and Information Systems Platforms.

Information Systems Audit Methodology

Our methodology has been developed in accordance with International Information

Systems Audit Standards e.g ISACA Information Systems Audit Standards and

Guidelines and the Sabarne Oxley COSO Standard. The beginning point of thismethodology is to carry out planning activities that are geared towards integrating a RiskBased Audit Approach to the IS Audit.

PHASE 1: Audit Planning

In this phase we plan the information system coverage to comply with the audit

objectives specified by the Client and ensure compliance to all Laws and Professional


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Standards. The first thing is to obtain an Audit Charter from the Client detailing the

purpose of the audit, the management responsibility, authority and accountability of the

Information Systems Audit function as follows:

1. Responsibility: The Audit Charter should define the mission, aims, goals and

objectives of the Information System Audit. At this stage we also define the KeyPerformance Indicators and an Audit Evaluation process;

2. Authority: The Audit Charter should clearly specify the Authority assigned to theInformation Systems Auditors with relation to the Risk Assessment work that will

be carried out, right to access the Clients information, the scope and/or

limitations to the scope, the Clients functions to be audited and the auditeeexpectations; and

3. Accountability: The Audit Charter should clearly define reporting lines,

appraisals, assessment of compliance and agreed actions.

The Audit Charter should be approved and agreed upon by an appropriate level within the

Clients Organization.

See Template for an Audit Charter/ Engagement Letter here.

In addition to the Audit Charter, we should be able to obtain a written representation

(Letter of Representation) from the Clients Management acknowledging:

1. Their responsibility for the design and implementation of the Internal ControlSystems affecting the IT Systems and processes

2. Their willingness to disclose to the Information Systems Auditor their knowledge

of irregularities and/or illegal acts affecting their organisation pertaining to

management and employees with significant roles within the internal auditdepartment.

3. Their willingness to disclose to the IS Auditor the results of any risk assessmentthat a material misstatement may have occurred

See a Template for a Letter of Representation here.

PHASE 2 Risk Assessment and Business Process Analysis

Risk is the possibility of an act or event occurring that would have an adverse effect on

the organisation and its information systems. Risk can also be the potential that a given

threat will exploit vulnerabilities of an asset or group of assets to cause loss of, or damageto, the assets. It is ordinarily measured by a combination of effect and likelihood of

occurrence.

More and more organisations are moving to a risk-based audit approach that can be

adapted to develop and improve the continuous audit process. This approach is used toassess risk and to assist an IS auditors decision to do either compliance testing or

substantive testing. In a risk based audit approach, IS auditors are not just relying on risk.


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They are also relying on internal and operational controls as well as knowledge of the

organisation. This type of risk assessment decision can help relate the cost/benefit

analysis of the control to the known risk, allowing practical choices.

The process of quantifying risk is called Risk Assessment. Risk Assessment is useful in

making decisions such as:

1. The area/business function to be audited

2. The nature, extent and timing of audit procedures3. The amount of resources to be allocated to an audit

The following types of risks should be considered:

Inherent Risk: Inherent risk is the susceptibility of an audit area to error which could be

material, individually or in combination with other errors, assuming that there were no

related internal controls. In assessing the inherent risk, the IS auditor should consider

both pervasive and detailed IS controls. This does not apply to circumstances where theIS auditors assignment is related to pervasive IS controls only. A pervasive IS Control

are general controls which are designed to manage and monitor the IS environment andwhich therefore affect all IS-related activities. Some of the pervasive IS Controls that an

auditor may consider include:

The integrity of IS management and IS management experience and knowledge

Changes in IS management

Pressures on IS management which may predispose them to conceal or misstate

information (e.g. large business-critical project over-runs, and hacker activity)

The nature of the organisations business and systems (e.g., the plans for

electronic commerce, the complexity of the systems, and the lack of integratedsystems)

Factors affecting the organisations industry as a whole (e.g., changes intechnology, and IS staff availability)

The level of third party influence on the control of the systems being audited (e.g.,

because of supply chain integration, outsourced IS processes, joint business

ventures, and direct access by customers) Findings from and date of previous audits

A detailed IS control is a control over acquisition, implementation, delivery and support

of IS systems and services. The IS auditor should consider, to the level appropriate for

the audit area in question:

The findings from and date of previous audits in this area

The complexity of the systems involved

The level of manual intervention required

The susceptibility to loss or misappropriation of the assets controlled by the

system (e.g., inventory, and payroll)

The likelihood of activity peaks at certain times in the audit period


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Activities outside the day-to-day routine of IS processing (e.g., the use of

operating system utilities to amend data)

The integrity, experience and skills of the management and staff involved inapplying the IS controls

Control Risk: Control risk is the risk that an error which could occur in an audit area,and which could be material, individually or in combination with other errors, will not be

prevented or detected and corrected on a timely basis by the internal control system. Forexample, the control risk associated with manual reviews of computer logs can be high

because activities requiring investigation are often easily missed owing to the volume of

logged information. The control risk associated with computerised data validationprocedures is ordinarily low because the processes are consistently applied. The IS

auditor should assess the control risk as high unless relevant internal controls are:

Identified

Evaluated as effective

Tested and proved to be operating appropriately

Detection Risk: Detection risk is the risk that the IS auditors substantive procedures will

not detect an error which could be material, individually or in combination with other

errors. In determining the level of substantive testing required, the IS auditor shouldconsider both:

The assessment of inherent risk

The conclusion reached on control risk following compliance testing

The higher the assessment of inherent and control risk the more audit evidence the IS

auditor should normally obtain from the performance of substantive audit procedures.

Our Risk Based Information Systems Audit Approach


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A risk based approach to an Information Systems Audit will enable us to develop anoverall and effective IS Audit plan which will consider all the potential weaknesses

and /or absence of Controls and determine whether this could lead to a significantdeficiency or material weakness.

In order to perform an effective Risk Assessment, we will need to understand the ClientsBusiness Environment and Operations. Usually the first phase in carrying out a Risk

Based IS Audit is to obtain an understanding of the Audit Universe. In understanding the

Audit Universe we perform the following:

Identify areas where the risk is unacceptably high

Identify critical control systems that address high inherent risks

Assess the uncertainty that exists in relation to the critical control systems

In carrying out the Business Process Analysis we:

Obtain an understanding of the Client Business Processes

Map the Internal Control Environment

Identify areas of Control Weaknesses

The Chat to the right summarises the business process analysis phase.
http://wikieducator.org/File:BusinessAnalysisFlowChat.jpg


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The template xxx will provide you with a guideline to document an Organisations

Business Sub Processes identified during the risk analysis phase.For each of the sub-

processes, we identify a list of What Could Go Wrong (WCGW). This WCGW representthe threat existing on a particular process. A single process would have multiple

WCGWs. For each of the WCGWs identified in the prior phase we will determine the

Key Activities within that process.For each Key Activity:

1. We will identify the Information Systems Controls2. For each of the Controls Identified, we would rate the impact/effect of the lack of

that control (on a rating of 1 - 5, with 5 indicating the highest impact),we will then

determine the likelyhood of the threat occuring( also on a rating of 1 - 5 with 5representing the highest likelyhood).

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PHASE 3 Performance of Audit Work

In the performance of Audit Work the Information Systems Audit Standards require us t

o provide supervision, gather audit evidence and document our audit work. We achieve

this objective through:

Establishing an Internal Review Process where the work of one person isreviewed by another, preferably a more senior person.
http://wikieducator.org/File:ControlFramework.jpg


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We obtain sufficient, reliable and relevant evidence to be obtained through

Inspection, Observation, Inquiry, Confirmation and recomputation of calculations

We document our work by describing audit work done and audit evidencegathered to support the auditors findings.

Based on our risk assessment and upon the identification of the risky areas, we moveahead to develop an Audit Plan and Audit Program. The Audit Plan will detail the nature,

objectives, timing and the extent of the resources required in the audit.

See Template for a Sample Audit Plan.

Based on the compliance testing carried out in the prior phase, we develop an audit

program detailing the nature, timing and extent of the audit procedures. In the Audit Plan

various Control Tests and Reviews can be done. They are sub-divided into:

1. General/ Pervasive Controls

2. Specific Controls

The Chat below to the left shows the Control Review Tests that can be performed in the

two Control Tests above.

Control Objectives for Information and related Technology (COBIT)

The Control Objectives for Information and related Technology (COBIT) is a set of bestpractices (framework) for information (IT) management created by the Information

Systems Audit and Control Association (ISACA), and the IT Governance Institute (ITGI)

in 1992.

COBIT provides managers, auditors, and IT users with a set of generally acceptedmeasures, indicators, processes and best practices to assist them in maximizing the

benefits derived through the use of information technology and developing appropriate IT

governance and control in a company.


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COBIT helps meet the multiple needs of management by bridging the gaps between

business risks, control needs and technical issues. It provides a best practices framework

for managing IT resources and presents management control activities in a manageable

and logical structure. This framework will help optimise technology informationinvestments and will provide a suitable benchmark measure.
http://wikieducator.org/File:CobitOverview.jpg


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The Framework comprises a set of 34 high-level Control Objectives, one for each of the

IT processes listed in the framework. These are then grouped into four domains: planning

and organisation, acquisition and implementation, delivery and support, and monitoring.This structure covers all aspects of information processing and storage and the

technology that supports it. By addressing these 34 high-level control objectives, we will

ensure that an adequate control system is provided for the IT environment. Adiagrammatic representation of the framework is shown below.

We shall apply the COBIT framework in planning, executing and reporting the results of

the audit. This will enable us to review the General Controls Associated with IT

Governance Issues. Our review shall cover the following domains;

Planning and organisation of information resources; The planning and acquisition of systems and path in stage growth model of

information systems;

The delivery and support of the IS/IT including facilities, operations, utilisation

and access; Monitoring of the processes surrounding the information systems;

The level of effectiveness, efficiency, confidentiality, integrity, availability,compliance and reliability associated with the information held in; and

The level of utilisation of IT resources available within the environment of the IS

including people, the application systems of interface, technology, facilities anddata.

The above control objectives will be matched with the business control objectives to

apply specific audit procedures that will provide information on the controls built in the

application, indicating areas of improvement that we need to focus on achieving.

Application Control Review

An Application Control Review will provide management with reasonable assurance that

transactions are processed as intended and the information from the system is accurate,

complete and timely. An Application Controls review will check whether:

Controls effectiveness and efficiency

Applications Security

Whether the application performs as expected

A Review of the Application Controls will cover an evaluation of a transaction life cyclefrom Data origination, preparation, input, transmission, processing and output as follows:

1. Data Origination controls are controls established to prepare and authorize data tobe entered into an application. The evaluation will involve a review of source

document design and storage, User procedures and manuals, Special purpose

forms, Transaction ID codes, Cross reference indices and Alternate documents


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where applicable. It will also involve a review of the authorization procedures and

separation of duties in the data capture process.

2. Input preparation controls are controls relating to Transaction numbering, Batchserial numbering, Processing, Logs analysis and a review of transmittal and

turnaround documents

3. Transmission controls involve batch proofing and balancing, Processingschedules, Review of Error messages, corrections monitoring and transaction

security

4. Processing controls ensure the integrity of the data as it undergoes the processingphase including Relational Database Controls, Data Storage and Retrieval

5. Output controls procedures involve procedures relating to report distribution,

reconciliation, output error processing, records retention.

The use of Computer Aided Audit Techniques (CAATS) in the performance of an IS

Audit

The Information Systems Audit Standards require us that during the course of an audit,the IS auditor should obtain sufficient, reliable and relevant evidence to achieve the audit

objectives. The audit findings and conclusions are to be supported by the appropriateanalysis and interpretation of this evidence. CAATs are useful in achieving this objective.

Computer Assisted Audit Techniques (CAATs) are important tools for the IS auditor in

performing audits.They include many types of tools and techniques, such as generalized

audit software, utility software, test data, application software tracing and mapping, andaudit expert systems.For us, our CAATs include ACL Data Analysis Software and the

Information Systems Audit Toolkit(ISAT).

CAATs may be used in performing various audit procedures including:

Tests of details of transactions and balances(Substantive Tests)

Analytical review procedures

Compliance tests of IS general controls

Compliance tests of IS application controls

CAATs may produce a large proportion of the audit evidence developed on IS audits and,as a result, the IS auditor should carefully plan for and exhibit due professional care in

the use of CAATs.The major steps to be undertaken by the IS auditor in preparing for the

application of the selected CAATs are:

Set the audit objectives of the CAATs

Determine the accessibility and availability of the organisations IS facilities,

programs/system and data

Define the procedures to be undertaken (e.g., statistical sampling, recalculation,confirmation, etc.)

Define output requirements


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Determine resource requirements, i.e., personnel, CAATs, processing

environment (organisations IS facilities or audit IS facilities)

Obtain access to the clientss IS facilities, programs/system, and data, includingfile definitions

Document CAATs to be used, including objectives, high-level flowcharts, and run

instructions Make appropriate arrangements with the Auditee and ensure that:

1. Data files, such as detailed transaction files are retained and made available

before the onset of the audit.

2. You have obtained sufficient rights to the clients IS facilities, programs/system,and data

3. Tests have been properly scheduled to minimise the effect on the organisations

production environment.4. The effect that changes to the production programs/system have been properly

consideered.

See Template here for example tests that you can perform with ACL

PHASE 4: Reporting

Upon the performance of the audit test, the Information Systems Auditor is required to

produce and appropriate report communicating the results of the IS Audit. An IS Auditreport should:

1. Identify an organization, intended recipients and any restrictions on circulation

2. State the scope, objectives, period of coverage, nature, timing and the extend of

the audit work3. State findings, conclusions, recommendations and any reservations, qualifications

and limitations

4. Provide audit evidence

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