IT Auditing & Assurance, 2e, Hall & Singleton

 Step 1: Data processing department –

inventory control
◦ Purchasing Department
 Step 2: Data processing department –
P.O.
◦ Receiving Department
 Step 3: Data processing department –
batch update of inventory
◦ Accounts Payable
 Step 4: Data processing department –
validates vendors
IT Auditing & Assurance, 2e, Hall &
Singleton
 Step 5: Data processing department –
scans for items due and prints checks
for items received
 Step 6: Cash disbursements department
– reconciles checks, submits checks to
management for signature
 Step 7: Accounts payable – matches
copies of checks with open vouchers,
closes them and files documents
 Concludes expenditure cycle
IT Auditing & Assurance, 2e, Hall &
Singleton
 Data processing steps performed
automatically:
1. Inventory file scanned for items and
reorder points
2. Purchase requisition record for all items
needing replenishment
3. Consolidate requisitions by vendor
4. Retrieve vendor mailing information
5. P.O. prepared and sent to vendor (EDI)
6. Open P.O. record added for each
transaction
7. List of P.O. sent to purchasing department
IT Auditing & Assurance, 2e, Hall &
Singleton
 Goods arrive at receiving department

 Quantities received entered per item

IT Auditing & Assurance, 2e, Hall &

Singleton
 Data processing steps performed
automatically:
1. Quantities keyed matched to open P.O.
record
2. Receiving report file record added
3. Update inventory subsidiary records
4. G.L. inventory updated
5. Record removed from open P.O. file and
added to open A.P. file, due date established

IT Auditing & Assurance, 2e, Hall &

Singleton
 Each day, due date filed of A.P. are
scanned for items where payment is due

IT Auditing & Assurance, 2e, Hall &

Singleton
 Data processing steps performed
automatically:
1. Checks are printed, signed and distributed
to mailroom (unless EDI/EFT)
2. Payments are recorded in check register
file
3. Items paid are transferred from open A.P.
to closed A.P. file
4. G.L.- A.P. and cash accounts are updated
5. Appropriate reports are transmitted to A.P.
and cash disbursements departments for
review
IT Auditing & Assurance, 2e, Hall &
Singleton
 Control implications
◦ General in nature
◦ Similar to those of Chapter 9

IT Auditing & Assurance, 2e, Hall &

Singleton
 Improved inventory control
 Better cash management
 Less time lag
 Better purchasing time management
 Reduction of paper documents

IT Auditing & Assurance, 2e, Hall &

Singleton
 Segregation of duties
 Accounting records and access controls

IT Auditing & Assurance, 2e, Hall &

Singleton
 Drawbacks to using regular A.P. and
cash disbursements systems to do
payroll
◦ General expenditure procedures that
apply to all vendors will not apply to
employees
◦ Writing checks to employees requires
special controls
◦ General expenditure procedures are
designed to accommodate relatively
smooth flow of transactions
IT Auditing & Assurance, 2e, Hall &
Singleton
 Often integrated with H.R.
 Differs from previous automate
system

◦ Operations departments transmit

transactions to D.P. electronically
◦ Direct access to files are used for data
storage
◦ Many processes are now performed in
real time
IT Auditing & Assurance, 2e, Hall &
Singleton
 Personnel
 Cost accounting
 Timekeeping
 Data processing
1. Labor costs are distributed to accounts
2. Online labor distribution summary
3. Online payroll register
4. Employee records are updated
5. Payroll checks are prepared and signed
6. Disbursement system generates check to fund
the payroll imprest account
7. G.L. updated

IT Auditing & Assurance, 2e, Hall &

Singleton
 Input controls
◦ Data validation controls
◦ Testing validation controls
◦ Batch controls
◦ Testing batch controls
◦ Purchases authorization controls
◦ Testing purchases authorization
controls
◦ Employee authorization
◦ Testing employee authorization
procedures IT Auditing & Assurance, 2e, Hall &
Singleton
 Process controls
◦ File update controls
 Sequence check control
 Liability validation control
 Valid vendor file
 Testing file update controls
◦ Access controls
 Warehouse security
 Moving assets promptly when received
 Paying employees by check vs. cash
 Risks
• Employees with access to A.P. subsidiary file
• Employees with access to attendance records
• Employees with access to both cash and A.P. records
• Employees with access to both inventory and inventory
records
 Testing access controls
IT Auditing & Assurance, 2e, Hall &
Singleton
 Process controls
◦ Physical controls
 Purchase system controls
• Segregation of inventory control from warehouse
• Segregation of G.L. and A.P. from cash
disbursements
• Supervision of receiving department
 Inspection of assets
 Theft of assets
 Reconciliation of supporting documents: P.O.,
receiving report, supplier’s invoice

 Payroll System controls

• Verification of timecards
• Supervision
• Paymaster
• Payroll imprest account
Testing of physical controls
IT Auditing & Assurance, 2e, Hall &
 Singleton
 Process controls
◦ Output controls
 A.P. change report
 Transaction logs
 Transaction listing
 Logs of automatic transactions
 Unique transaction identifiers
 Error listing
 Testing output controls

IT Auditing & Assurance, 2e, Hall &

Singleton
 Risks and audit concerns
 Understanding data
◦ Inventory file
◦ Purchase order file
◦ Purchase order line item file
◦ Receiving report file
◦ Disbursement voucher file
◦ File preparation procedures

IT Auditing & Assurance, 2e, Hall &

Singleton
 Testing accuracy and completeness
assertions
 Review disbursement vouchers for
unusual trends and exceptions
◦ Accurate invoice prices
 Testing completeness, existence, rights
and obligations assertions
◦ Searching for unrecorded liabilities
◦ Searching for unauthorized disbursement
vouchers
◦ Review of multiple checks to vendors
◦ Auditing payroll and related records
IT Auditing & Assurance, 2e, Hall &
Singleton
IT Auditing & Assurance, 2e, Hall & Singleton