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Sampling Statistical analyses Data gathering tools Analytical review techniques Observation. Section Topics. Problem solving Risk and control self-assessment Computerized audit tools and techniques Process mapping, including flowcharting. Part 2, Section E. When to use.

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Sampling

Statistical analyses

Data gathering tools

Analytical review techniques

Observation

Section Topics

  • Problem solving

  • Risk and control self-assessment

  • Computerized audit tools and techniques

  • Process mapping, including flowcharting

Part 2, Section E


When to use

To estimate the number of times a certain characteristic may occur in a population

Size of sample

Based on judgment about probability that errors (or other characteristics) will occur or based on statistical tables

Statistical table specifications

  • Population size

  • Confidence level

  • Precision

  • Expected error rate

Attributes Sampling

Part 2, Section E, Topic 1


Variables Sampling

When to use variables sampling

Specifications for statistical tables

When size matters; e.g., amount of a discrepancy

  • Population size

  • Confidence level

  • Precision

  • Standard deviation

Reminder: Use attributes sampling when number matters, not size.

Reminder: For attributes sampling, error rate is a specification, not standard deviation.

Part 2, Section E, Topic 1


Case example

Population:

1,500 accounts

Total book value:

US $1 million

Sample size:

100 accounts

Sample book value:

US $66,666.67

Sample audit value:

US $69,350.00

Step 1: Calculate average audit value (i.e., mean-per-unit value for audited samples).

$69,350.00 / 100 = $693.50 / acct.

Step 2: Multiply mean/unit value by number of accounts in the population.

$693.50  1,500 accounts = $1,040,250.00

Undercount = $40,250.00

($1,040,250.00 – $1,000,000.00)

Variables Sampling:

Mean-per-Unit Estimation

Part 2, Section E, Topic 1


Case example

Population:

1,500 accounts

Total book value:

US $1 million

Sample size:

100 accounts

Sample book value:

US $66,666.67

Sample audit value:

US $69,350.00

Variables Sampling:

Difference Estimation

Step 1: Calculate average difference between audit value and book value for the sample.

$69,350.00 – $66,666.67 / 100 accounts = $26.83

Step 2: Determine the difference estimate for the population.

$26.83  1,500 accounts = $40,245.00

Step 3: Estimate actual value by adding the difference estimate and book value for the population.

$40,245.00 + $1,000,000 = $1,040,245.00

Book value is understated by $40,245.00.

Part 2, Section E, Topic 1


Case example

Population:

1,500 accounts

Total book value:

US $1 million

Sample size:

100 accounts

Sample book value:

US $66,666.67

Sample audit value:

US $69,350.00

Variables Sampling:

Ratio Estimation

Step 1: Audit value for sample = $69,350.00

Step 2: Book value for sample = $66,666.67

Step 3: Find ratio of sample audit value/book value:

$69,350.00 / $66,666.67 = 1.04

Step 4: To estimate actual population value, multiply ratio by population book value:

1.04  $1,000,000 = $1,040,000.00

Book value is understated by $40,000.

Part 2, Section E, Topic 1


When an internal auditor reports the results of statistical sampling in the form “We are 95% confident that the error rate in the population is 6%, plus or minus 3%,” what exactly does that mean?

Discussion Question

Answer: This means that a randomly selected sample from an entire population (e.g., a group of transactions) contained a number of errors

indicating that there is a 95% chance that the

error rate in the total population is between 3%

and 9%.

Part 2, Section E, Topic 1


Which of the following considerations would necessitate an increase in sample size? Which would allow for a smaller sample?

Discussion Question

Answer:

Larger

Smaller

1. Increase confidence level from 90% to 95%.

X

2. Increase range of error from  2.5% to  5%.

X

3. Increase population size from 150,000 to 500,000.

X

Part 2, Section E, Topic 1


What are some of the advantages and disadvantages of statistical sampling?

Discussion Question

Sample answer:

  • Advantages

  • May yield desired results from the minimum sample size

  • Yields quantified data

  • Includes measures of sampling risk, confidence level, and precision

  • Is adaptable to computer testing

  • Lends credibility to audit conclusions

  • Disadvantages

  • Requires cost and time to perform

  • Requires training and software costs

  • May preclude experienced auditors’ insights

Part 2, Section E, Topic 1


What are the differences, if any, between unsystematic (haphazard) sampling and judgmental sampling?

Discussion Question

Sample answer: Some, but not all, judgmental sampling is unsystematic. Unsystematic sampling makes no attempt either to randomize samples (such as picking every tenth item from the population)

or to select samples according to the auditor’s

best judgment (such as excluding certain items

as obviously unrepresentative).

Part 2, Section E, Topic 1


What are some advantages and disadvantages of nonstatistical sampling?

Discussion Question

Sample answer:

  • Advantages

  • Flexibility

  • Use of internal auditor’s judgment

  • Allows reasonable reliability at reasonable cost

  • Disadvantages

  • Results not statistically valid

  • No objective measure of sampling risk provided

  • Chance of wrong sample size

  • Effectiveness depends upon the auditor’s skill

Part 2, Section E, Topic 1


Random Numbers sampling?

Discussion Question

Which random number matches a population number?

Answer:

Population Numbers

96

97

98

99

100

101

102

103

104

105

106

85

86

87

88

89

90

92

93

93

94

95

107

108

109

110

111

112

113

114

115

116

117

Part 2, Section E, Topic 1


Stratified Random Sampling sampling?

Widely varied populations can be grouped into like strata with random sampling of each to reduce the chances of missing a significant item in a small but important segment.

Stratum 2 Billionaires

Stratum 1

Ordinary accounts

Part 2, Section E, Topic 1


Discussion Question sampling?

Interval sampling selects items a set distance apart, such as every third item. What is a potential problem and a safeguard?

Sampling interval = 3; Starting point = 2

Sample answer: The population may use the same interval for identical items. Run the selection more than once from different random starting points.

Part 2, Section E, Topic 1


Cluster Sampling sampling?

Samples made up of pre-existing clusters such as file drawers, boxes, rooms, etc.

A–Z

A–Z

A–Z

taxes

A–Z

A–Z

Size 9

A–Z

A–Z

taxes

A–Z

A–Z

Part 2, Section E, Topic 1


Discussion Question sampling?

When is it appropriate to use the two types of attribute sampling below?

Answer:

Use discovery sampling when:

Use stop-and-go sampling when:

You need to find only one instance; e.g., suspected fraud.

You think you may get reasonable results from a small sample.

Part 2, Section E, Topic 1


Dollars 1–500,000 sampling?

Dollar-Unit Discovery Sampling (DUDS)

All confirmations

#1 = $1,000

#2 = $876

#3 = $58

***

#28 = $9,999

***

#1012 = $1,350

Dollar #824

Dollar #221, #422

Dollar #1173

Dollar #23

Dollar #500,000

Click again to show random selections.

$500,000 total

Part 2, Section E, Topic 1


Population sampling?

Dollar units

Sample

Outcome

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

$1

Account 1 = $2

Estimate of maximum error at confidence level

Account 2 = $3

Acct. 2

Acct. 4

Account 3 = $4

Account 4 = $9

Dollar-Unit Sampling: A Hybrid

Part 2, Section E, Topic 1


Discussion Question sampling?

What is the difference between descriptive and inferential statistics?

Answer:Descriptive statistics provides tools and vocabulary to shape raw data in such a way that inferential statisticscan be

used to draw conclusions about the

meaning of the data (as in the preceding section).

Part 2, Section E, Topic 2


Normal Distributions and the Bell Curve sampling?

The individual values in any large-scale population tend to be distributed symmetrically around a midpoint (m) unless a force other than chance distorts the distribution.

-3s

-2s

-1s

m

+1s

+2s

+3s

Part 2, Section E, Topic 2


29% sampling?

Tosses

28%

17%

20%

4%

2%

5h,0t

4h,1t

3h,2t

m

4h,1t

4t,1h

5t,0h

Discussion Question

Can you get a normal curve when you toss 5 pennies 100 times?

Answer:

Not quite; it’s a small sample.

Part 2, Section E, Topic 2


Mode = Most Frequent sampling?

m

1

2

3

3

3

4

5

...

...

...

...

...

...

Median = Midpoint

Mean = Average

1 + 2 + 3 + 3 + 3 + 4 + 5

7

=

3

-3s

-2s

-1s

+1s

+2s

+3s

m

Measures of Central Tendency:

Mean, Median, and Mode

Part 2, Section E, Topic 2


3 sampling?

5

1

2

3

3

4

...

...

...

...

...

...

Impact of an Outlier (Change 5 to 15)

Mode = Most Frequent

Mode = Most Frequent

15

3

1

2

3

3

4

...

...

...

...

...

...

Median = Midpoint

Median = Midpoint

Mean = Average

Mean = Average

1 + 2 + 3 + 3 + 3 + 4 + 5

7

1 + 2 + 3 + 3 + 3 + 4 + 15

7

=

3

=

4.43

Part 2, Section E, Topic 2


13.59% sampling?

13.59%

0.1%

0.1%

2.14%

2.14%

Discussion Question

The standard deviation, represented by the Greek letter sigma (s), measures variabilityof the sample—the percentage of items falling with equal segments on both sides of the mean.

What % of area lies between –1 and +1 sigmas?

34.13%

34.13%

Answer: About 68%

-3s

-2s

-1s

m

+1s

+2s

+3s

Part 2, Section E, Topic 2


Range sampling?

The wider the range from “tail” to “tail,” the larger the standard deviation—because there is more variability in the sample of items.

Left tails

Right tails

Range

Part 2, Section E, Topic 2


MAD = Average deviation of sample items from the mean without regard to direction of the deviation

MAD example: mileage for 10 cars

MPG

MPG – Mean = Absolute deviation

1—20.0

2—21.5

3—19.5

4—25.0

5—42.5

6—14.0

7—8.0

8—23.0

9—17.5

10—28.0

20.0 – 21.9 = 1.9

21.5 – 21.9 = 0.4

19.5 – 21.9 = 2.4

25.0 – 21.9 = 3.1

42.5 – 21.9 = 20.6

14.0 – 21.9 = 7.9

8.0 – 21.9 = 13.9

23.0 – 21.9 = 1.1

17.5 – 21.9 = 4.4

28.0 – 21.9 = 6.1

61.8 deviation

10 mpg items

6.18 MAD

Total = 219.0

Deviation = 61.8

MAD (Mean Absolute Deviation)

Part 2, Section E, Topic 2


Variance ( without regard to direction of the deviations2)measures dispersion and so is similar to MAD—except that it uses the square of each deviation from the mean.

Squares of MPG deviations (previous slide)

Variance (s2)

1.92 = 3.61

0.42 = 0.16

2.42 = 5.76

3.12 = 9.61

20.62 = 424.36

7.92 = 62.41

13.92 = 193.21

1.12 = 1.21

4.42 = 19.36

6.12 = 37.21

756.9

10

s2 = 75.69

Note: Square root of variance (s2) is standard deviation (s).

Total = 756.9

Variance

Part 2, Section E, Topic 2


Discussion Question without regard to direction of the deviation

If this C chart tracks account errors per batch for batches 1 through 10, which batches (if any) would likely be selected for review?

Assignable variation

UCL 6

Mean 4

Natural variation

Answer: Batches 3 and 7, which are “out of control.”

LCL 2

Assignable variation

1

2

3

4

5

6

7

8

9

10

Part 2, Section E, Topic 2


Discussion Question without regard to direction of the deviation

If this P chart measures percentage of errors committed by tellers 1–10, is it measuring variables or attributes?

Assignable variation

UCL 4.5%

Mean 3.75%

Natural variation

Answer: P charts measure attributes in percentage terms.

LCL 3.0%

Assignable variation

1

2

3

4

5

6

7

8

9

10

Part 2, Section E, Topic 2


Discussion Question without regard to direction of the deviation

This R chart is used to measure the dollar amount of overcounting in 10 branches. Is it measuring attributes or variables?

Assignable variation

UCL $500

Mean $450

Natural variation

Answer: R charts are used to track variables, such as ranges of counting error.

LCL $400

Assignable variation

1

2

3

4

5

6

7

8

9

10

Part 2, Section E, Topic 2


Preparation without regard to direction of the deviation

Production

Review

  • Planning

  • Opening

  • Conducting

  • Closing

  • Documenting

  • Evaluating

Elements of the Audit Interview

Part 2, Section E, Topic 3


Discussion Question without regard to direction of the deviation

What are some steps to take when planning the audit interview?

Sample answer:

Obtain background information.

Define purpose and specific objectives.

Prepare open and closed questions.

Organize questions in logical sequence.

Prepare a written agenda.

Tailor objectives and questions to the person.

Schedule a convenient, agreed-upon time.

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Part 2, Section E, Topic 3


Step 1 without regard to direction of the deviation

Step 2

Step 3

Step 4

Step 5

Discussion Question

What are some effective ways to open an audit interview?

Sample answer:

Start on time.

Build rapport with a warm introduction.

Get the interviewee’s name right.

After the warm-up, state objectives and purpose.

Continue building rapport, if possible.

Part 2, Section E, Topic 3


Discussion Question without regard to direction of the deviation

What are some do’s and don’ts for conducting the interview?

Sample answers:

  • Be confident but not intimidating.

  • Avoid offensive or confusing language, humor, etc.

  • Watch the interviewee’s body language/behavior; don’t focus on note-taking.

  • Stay focused; prompt for feelings as well as facts.

  • Question, summarize, and rephrase for clarity.

  • Don’t confuse opinion with fact.

  • Bring a second interviewer if necessary.

  • Be professional in action and appearance.

  • Take appropriate notes.

Part 2, Section E, Topic 3


Closing the Interview without regard to direction of the deviation

Stop at the promised time.

Ask for permission to return if questions remain.

Summarize key points from notes.

Describe the next step.

Provide contact information.

Thank the interviewee.

Part 2, Section E, Topic 3


Interview notes without regard to direction of the deviation

After the Interview

Document the interview.

Evaluate your performance.

  • Put notes in final written form.

  • Do it right away.

  • Surprises?

  • Right balance of open and closed questions?

  • Organized and logical process?

  • Right time and place?

  • Rapport?

  • Objectives and purpose explained?

Part 2, Section E, Topic 3


Branch: without regard to direction of the deviation

Supervisor:

Area:

Date completed:

Yes

Question

No

Comments

1. Are all credit sales approved by the Credit Department before shipping?

2. Is the Credit Department independent of the sales department?

3. Are sales priced on the basis of approved price lists?

4. Are prenumbered sales invoice forms used?

5. Are all sales invoice forms properly controlled?

6. Are prenumbered shipping orders used to authorize shipments to customers?

Discussion Question

What are some advantages and disadvantages of using questionnaires?

Sample answer:

Advantages—Easy to administer; uniform information for comparison; can go to large numbers of informants anywhere

Disadvantages—Not appropriate for some situations; not good for in-depth information; can’t observe informants

Part 2, Section E, Topic 3


As a reminder of questions to ask without regard to direction of the deviation

As a data sheet for respondents to fill out quickly

Discussion Question

What are some appropriate ways to use a checklist for data-gathering?

Sample answer:

As a control to ensure complete audit

Part 2, Section E, Topic 3


Asks recipients to respond regardless of whether or not they believe the information is correct

Asks recipients to respond only when they believe the information is incorrect

Third-party Confirmation

Obtains direct written verification of the accuracy of information from independent third parties

Positive confirmation

Negative confirmation

Part 2, Section E, Topic 3


yes believe the information is correct

Analyze data to explain finding

Recommend action

Gather data

Unexpected finding?

  • Period—period comparison

  • Results—budget comparison

  • Financial—nonfinancial relationship

  • Element—element relationship

  • Unit—unit comparison

  • Organization—industry comparison

Analytical Review Techniques

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

(Variance Analysis)

What are the unreasonable relationships in the chart?

Budgeted expense

Actual expense

Period

January $9,000 $8,500

February 10,000 8,500

March 10,500 8,500

April 10,500 9,500

May 10,500 10,500

June 10,000 12,000

July 10,000 16,000

August 12,500 13,000

September 13,000 11,000

October 12,500 9,000

November 9,500 8,000

December 9,000 12,500

Answer: Divergence is especially large in July and December.

Total 127,000 127,000

Part 2, Section E, Topic 4


Model Y believe the information is correct—Convertible

Model X—SUV

Monthly auto sales

Jan

Feb

Mar

Apr

May

Jun

Trend Analysis

Trend analysis looks for unreasonable changes in a series of historical data. A typical use of trend analysis is to track changes in financial data through periods of time—monthly, quarterly, and annually.

Part 2, Section E, Topic 4


Ratio Analysis believe the information is correct

By definition,ratio analysis is the measurement of relationships between quantities, such as debt to equity or all statement items to gross revenue.

A

B

Ratio of A to B where A is any quantity of interest and B is any other related quantity.

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

What is the main benefit of common-size statement analysis?

Sample Common-Size Statement

Revenue

Net sales$3,000,000 = 100.00%

Rent revenue 35,000 = 5.46%

Interest revenue 9,000 = 0.03%

Total revenue 3,044,000 = 101.47%

Expenses

Cost of goods sold 1,750,000 = 58.33%

Selling expenses 400,000 = 13.33%

Administrative expenses 325,000 = 10.83%

Interest expense 40,000 = 0.01%

Total expenses 2,515,000 = 83.83%

Income before taxes 429,000 = 14.30%

Income taxes 127,700 = 0.04%

Net income $302,000 = 10.07%

Answer: Expressing all items as percentages of sales enables comparison with statements of any size.

Part 2, Section E, Topic 4


How They Work believe the information is correct

General Types

Users

By comparing relationships of various financial statement items to assess organizational or unit performance

  • Activity ratios

  • Liquidity ratios

  • Leverage (debt) ratios

  • Profitability ratios

  • Auditors

  • Investors

  • Lenders

  • Managers

Financial Ratios

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

What do activity ratios measure?

Answer:

Ratio

Calculation

What It Measures

Inventory Turnover

Number of times during the year inventory is replaced

Cost of Goods

Average Inventory

Effectiveness in collecting receivables (small is good)

Days’ Sales Outstanding

Accounts Receivable

Sales / 360 Days

Accounts Payable Turnover

Effectiveness in managing all obligations to creditors

Accounts Payable

Purchases / 360 Days

Fixed Assets Turnover

Sales

Efficiency in use of fixed assets to generate sales

Average Net Fixed Assets

Total Assets Turnover

Effectiveness in using total assets to produce revenues

Sales

Average Total Assets

Part 2, Section E, Topic 4


Liquidity Ratios believe the information is correct

Ratio

Formula

What It Measures

Measures potential to pay down current liabilities; larger number = more assets available to pay debts

Current Assets

Current Ratio

Current Liabilities

Like current ratio except current assets exclude inventory as least liquid (least available) current asset

Current Assets – Inventory

Quick Ratio

Current Liabilities

Not a ratio; subtracts current liabilities from current assets to gauge potential to pay debts

Net Working Capital

Current Assets – Current Liabilities

Part 2, Section E, Topic 4


Discussion Question: believe the information is correct

Leverage (Debt) Ratios

Ratio

Formula

Is Higher or Lower Better?

Debt Ratio

Answer: Lower. A higher ratio generally indicates greater debt relative to assets and more risk.

Total Liabilities

Total Assets

Debt to Equity Ratio

Answer: Lower, generally. But the organization should carry some reasonable debt relative to equity.

Long-term Debt

Total Equity

Answer: Higher. A higher ratio indicates greater ability to cover obligations with earnings (EBIT).

Times Interest Earned Ratio

Earnings Before Interest and Taxes (EBIT)

Interest

Fixed Payment Coverage Ratio

Answer: Higher. A higher ratio indicates greater ability to cover fixed obligations within a set time.

Earnings Before Interest and Taxes (EBIT)

Interest + (Principal + Preferred

Dividends) × [1 / (1 – Taxes)]

Part 2, Section E, Topic 4


Operating Profits believe the information is correct

Sales

Net Profits

Sales

ROE

1 + Debt/Equity Ratio

Total Earnings

No. of Shares Outstanding

Profitability Ratios

What It Measures

Ratio

Calculation

Sales – Cost of Goods Sold

Effectiveness of pricing and cost control

Gross Profit Margin

Sales

Operating Profit Margin

Operational efficiency and effective pricing

Effective managing of pricing, cost, operations, debt, and taxes

Net Profit Margin

Return on Investment (ROI)

Total Asset Turnover × Net Profit Margin

Effective use of assets to generate profit

Return on Equity (ROE)

Net Profits

Success in generating net profits relative to equity

Shareholders’ Equity

Ability to use equity and debt to generate profits

Return on Capital

Organization’s value to investors

Earnings per Share

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

Regression analysis traces the impact of one condition (independent variable) on another condition (dependent variable). Which is the independent variable in the scatter diagram?

Scatter diagram

90,000

75,000

60,000

Fraud Losses (USD 000)

45,000

30,000

15,000

Answer: Security expenditures (x axis) is the independent variable.

0

200

400

600

800

1000

1200

Security expenditures

(USD 000)

Part 2, Section E, Topic 4


Answer: believe the information is correct

Y = dependent variable

X = independent variable

a = value of Y when X is 0; a constant

b = increase in Y for each unit of increase in X

Discussion Question

The regression equation provides a more accurate representation of the relationship between the dependent and independent variables than does the scatter diagram. What does each term stand for?

Y = a + bX

Part 2, Section E, Topic 4


Example: Regression Problem believe the information is correct

Y = a + bX

Calculate:

Value of Y (fraud losses) with security budget (X) of USD 60,000

Y = 75,000,000 + (– 30 × 60,000) = 75,000,000 – 1,800,000

= 73,200,000

Assumptions:

a = 75,000,000 (value of Y when X is 0)

b = – 30 (assuming Y decreases 30 units as X increases 1 unit)

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

What does r = 0 indicate about the relationship of the dependent and independent variables in a regression analysis?

r

reliability of the regression analysis

=

Answer: r = 0 indicates a completely random relationship between the variables.

Part 2, Section E, Topic 4


Y believe the information is correct

a + b1X1 + b2X2 +…+ bnXn

=

Multiple Regression

The multiple regression equation allows the internal auditor (or anyone else mathematically inclined) to study the relationship of the dependent variable with more than one independent variable.

Part 2, Section E, Topic 4


Discussion Question believe the information is correct

What are some limitations of regression analysis?

  • Sample answer:

  • Can show correlation, but not causation.

  • Cannot be the basis for concluding that change in the independent variable caused change

  • in the dependent variable. Other factors

  • may have been responsible.

Part 2, Section E, Topic 4


Observation believe the information is correct

Observed facts

Observed facts

Observed facts

Observed facts

Regulations and

Study and preparation

Client’s claims

Experience

Standards

Meaningful observations are facts put in context by the disciplined, experienced observer.

Part 2, Section E, Topic 5


Discussion Question believe the information is correct

What are some drawbacks or pitfalls to watch for when using observation as an audit tool?

  • Sample answer:

  • Observations are generally weak evidence that need backup.

  • Being observed may change the behavior of the audit client, leading to wrong conclusions.

Part 2, Section E, Topic 5


5-Attribute Approach to Problem Solving believe the information is correct

What is—the problem found and defined by the internal auditor

Condition

What ought to be—as defined by law, regulation, ethical principle, business objective, etc.

Criterion

The risk—what may happen to the organization if “what is” does not become “what ought to be”

Effect

The root cause—the deepest reason for the condition and, therefore, the factor that must be eliminated

Cause

Guidance to management for dealing with the root cause of the condition

Recommendation

Part 2, Section E, Topic 6


Discussion Question believe the information is correct

Match each statement below to the letter of the appropriate element of the 5-attribute problem-solving method.

A. Condition

B. Criterion

C. Effect

D. Cause

E. Recommendation

Answers:

D

The most significant correlation seems to link data loss and crashes to the age and type of hardware rather than employer error or poor maintenance.

Continued hardware crashes and data loss will result in escalating downtime, employee frustration, and loss of customers.

C

A

We’ve documented a rising trend of lost data that staff must recreate after computer crashes.

E

We’ve identified several consulting groups experienced in network set-up and suggest that you select one to oversee total hardware replacement.

B

Comparison studies show that other units with similar use patterns experience significantly less data loss and computer crashes.

Part 2, Section E, Topic 6


Initial IA use of CSA–Canada believe the information is correct

Watergate turmoil

IIA sponsors conference

CSA Center established

CCSA certification

1973

1987

1993

1997

1999

Control Self-Assessment (CSA)

Three principles common to CSA views:

1

Broad, integrative control framework, as with COSO.

Involvement of all who perform tasks, not the internal auditor alone, in control assessments.

2

Consideration of measurement as necessary but not sufficient for control assessment.

3

Part 2, Section E, Topic 7


Embedded Audit Modules believe the information is correct

Benefits

Drawbacks

  • Instantaneous review of transactions (if desired); checks incoming data against set criteria

  • No need for sampling if embedded module checks the total population

  • More reliable information for management’s Sarbanes-Oxley reporting

  • Can be difficult to install within or along with other software

Part 2, Section E, Topic 8


Discussion Question believe the information is correct

What are some of the audit tasks that generalized audit software (GAS) can perform?

  • Sample answer:

  • Read digital “read only” files (to audit, not to alter).

  • Examine particular records according to auditor-defined criteria (in other words, performing targeted data extraction).

  • Test calculations or make independent

  • calculations.

  • Analyze, summarize, or re-sequence data.

  • Test the effectiveness of controls.

Part 2, Section E, Topic 8


Discussion Question believe the information is correct

What are some benefits of generalized audit software and some obstacles to adopting it?

Sample answer:

  • Benefits

  • Scrutiny of all transactions, not just a sample

  • Targeting of specific transactions within huge populations

  • Much shorter audit durations

  • Uniform interface for all tasks

  • Facilitation of reviews through maintenance of test logs

  • Obstacles to adopting GAS

  • IS staff reluctance to try new software

  • Blocking of access to production data by staff concerned that GAS will interfere with production software

  • Additional costs for training and new software

Part 2, Section E, Topic 8


Excel can generate different charts from data in a table. believe the information is correct

Discussion Question

What are some audit-related capabilities of spreadsheets?

Sample answer:

  • Multitasking

  • Linking spreadsheets together

  • Creating and running macros (programs within programs)

  • Converting tables to charts and graphs

  • Performing analyses

  • Performing addition and other mathematical functions

Part 2, Section E, Topic 8


Discussion Question believe the information is correct

What are some benefits and drawbacks of automated working papers?

Sample answer:

Benefits

Drawbacks

  • Cost savings (no printing, etc.)

  • Convenience of electronic file transfer

  • Efficient communication to multiple readers simultaneously

  • Consistency because of templates and ease of meeting quality standards

  • Multimedia capability

  • Security (with password protection)

  • Reputation/professional pride

  • Need for training

  • Difficulty making smooth transition to new templates, etc., which may not be adapted to organization’s needs

  • File deterioration and obsolescence

Part 2, Section E, Topic 8


Discussion Question believe the information is correct

What are some uses of process maps?

Sample answer: Process maps can be any drawing or computer rendering of the steps in any process. They can be used for every process from planning each step in an audit to taking notes

on an observed work procedure.

Part 2, Section E, Topic 9


Although flowcharts can be penciled onto napkins or drawn, erased, and re-drawn on chalk boards, they are most efficiently produced by software.

PowerPoint, for example, has a set of flow chart symbols in “AutoShapes” on the drawing toolbar.

Flowchart symbols courtesy of PowerPoint

yes

Process

Process

Decision

no

Alternate process

Standard Flowchart Symbols

Part 2, Section E, Topic 9


  • Reinforcing Activity 2-9 erased, and re-drawn on chalk boards, they are most efficiently produced by software.

  • Part 2, Section E

  • Engagement Tools

Part 2, Section E


Questions? erased, and re-drawn on chalk boards, they are most efficiently produced by software.

End of Section E

Part 2, Section E


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