Chapter 7 Generalized Audit Software v1 1

Chapter 7 Case – Generalized Audit Software
The internal audit department of Sachem Manufacturing Company is considering to buy a

computer software that will aid in their auditing process. Sachem’s financial and
manufacturing control systems are completely automated on a large mainframe computer.
Melinda Robinson, the Director of Internal Audit, believes that Sachem should acquire a
computer audit software that can assist in the financial and procedure audits that her
department conducts.
The types of software packages that Robinson is considering are described below:
 A generalized audit software package that assists in basic audit work, such as the
retrieval of live data from large computer files. The department would review this
information using conventional audit investigation techniques. More specifically,
the department could perform criteria selection, sampling, basic computations for
quantitative analysis, record handling, graphical analysis, and the printing of
output (confirmations).
 An integrated test facility package that uses, monitors, and controls dummy test
data through existing programs. This software also checks the existence and
adequacy of program data entry controls and processing controls.
 A control flowcharting package that provides a graphical presentation of the data
flow of information through a system, pinpointing control strengths and
weaknesses.
 A program (parallel) simulation and modeling package that uses actual data to
conduct the same systemized process using a computer-logic program developed
by the auditor. The package can also be used to seek answers to difficult audit
problems (involving many comparisons and computations) within statistically
acceptable confidence limits.
Required
a) Without regard to any specific computer audit software, explain to the internal
auditor the general advantages of using computer audit software to assist with
audits.
b) Describe the audit purpose and the procedural steps to be followed by the internal
auditor in using:
i) A generalized audit software package.
ii) An integrated test facility package.
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Answer:
a) General advantages to the internal auditor of using computer audit software to

assist with audits include the following:
 Audits can be more efficient and can save labor spent on routine
calculations, such as: footing extensions, transcription between reports.
 Reports can be generated by the computer.
 The auditor’s time spent on the audit is more analytical than clerical.
 The auditor is able to examine more records and extract desired data more
readily through ad hoc reporting.
 Computer-generated reports and schedules are more, quicker, objective,
accurate and professional. It can also improve data communication.
 Audit sampling is improved. Any bias in sample selection is eliminated
because of assured randomness. This has a direct effect on sampling
precision, reliability, and audit accuracy.
b)
i) The purpose of generalized audit software programs is to perform a variety of
auditing operations on the computer files used to store the information. The
steps to be followed by the internal auditor to use generalized computer audit
software include:
 Planning and designing the audit application.
 Ensuring that the output and final reports are generated from the files
being tested.
ii) The purpose of integrated test facility (ITF) packages is to test both source data
controls and processing controls. The steps to be followed by the internal
auditor to use an ITF include:
 Selection and preparation of the test transactions to be passed through the
ITF. These transactions must be representative of all of the transactions
that the dummy unit emulates. All types of valid and invalid transactions
must be used and blended with regular transactions over time to properly
test the system under normal conditions.
 Review of all output and processing routines, including a comparison of
actual results to predetermined results.
iii) The purpose of a control flowcharting package is to interpret the program

source code and generate a corresponding program flowchart to facilitate the
review of internal controls. The steps to be followed by the internal auditor to
use a control flowcharting package include the following:
 Establish the audit objective by identifying the systems and programs to

be tested.
 Review manuals and documentation of the system and interview involved
personnel to get an overview of the operations to be tested.
iv) The purpose of a parallel simulation package is to ensure organizational
objectives are met, ensure compliance with technical standards, and to detect
unauthorized program changes. The steps to be followed by the internal auditor
to use a parallel simulation package include the following:
 Run the same data used in the company’s current application program
using the simulated application program.
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Chapter 7 Case – Generalized Audit Software

The internal audit department of Sachem Manufacturing Company is considering to buy a

a) General advantages to the internal auditor of using computer audit software to

iii) The purpose of a control flowcharting package is to interpret the program

 Establish the audit objective by identifying the systems and programs to

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