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Systems Auditing

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Linda Batch

on 14 April 2014

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Transcript of Systems Auditing

Systems Auditing
Audit Planning
collection of Audit Evidence
Evaluation of Evidence
Communication of Audit Results
Chapter 11
Accounting Information Systems 12th Edition
Marshall B. Romney
Paul John Steinbart
Auditing - Definition
The systematic process of obtaining and evaluating evidence regarding the assertions about economic actions and events.
In order to determine how well they correspond with established criteria.
Results are communicated to interested users
Scope - what part of the company or business process will the audit cover
Organize the audit team
Develop knowledge of the business
Review prior audit results
Identify risk factors
Prepare the audit program
Observations of operating activities
Review of documentation
Discussions with employees
Physical examination of assets
Confirmation through third parties
Reperformance of procedures
Vouching of source documents
Analytical Review
Audit sampling
Assess quality of internal controls
Assess reliability of information
Assess operating performance
Consider the need for additional evidence
Consider the risk factors
Document audit findings
Formulate audit conclusions
Develop recommendations for management
Prepare the audit report
Present the audit results to management
Risk Based Audit Approach
Determine the threats including fraud and error facing the company
Identify the control procedures that prevent, detect, or correct threats
Evaluate the control procedures
systems review and test of controls
Evaluate the control weaknesses
determine their effect on the nature, timing or extent of auditing procedures
evaluate compensating controls
Inherent risk - risk in the absence of controls
Control risk - risk that a material misstatement will occur even with controls
Detection risk - risk that auditors will not detect a misstatement
Mystery Inc. is a theater company that puts on Murder Mystery shows in Mississauga, Ontario. It produces 5 shows per year. Each show runs for two weeks. Mystery Inc. is about to experience and external audit by KPMG, a professional accounting firm based in Toronto, Ontario. Mystery Inc. is not large, however, many ticket sales are cash transactions, the company produces its financial statements on MS Excel, and they have a bookkeeper that maintains the books. There is one bank account and the company does not have any outstanding loans. Government Grants from the City of Mississauga and the Peel Region, in addition, to ticket sales, form a large part of their revenue stream, which is why the company must undergo an external audit.

The contract has been assigned to John Mills, an audit manager with KPMG, to plan and execute. John has never performed an external audit on a theater company in the past.


1. Identify three actions that John should take to plan the external audit.
2. Identify and briefly explain risk factors that John might consider for this theater company.
3. What are three activities that John and his team might perform to collect the audit evidence?
4. What are two things that John and his team should consider to evaluate the audit evidence?

Refer to Figure 11-1 to identify some answers to this question.
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