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Key Concepts:

Terms in this set (37)

For many control activities, documentation of their performance is more
objectively evaluated in contrast to the evaluation of the control environment.
Due to the nature of the subcomponents that constitute the control
environment, such as integrity and ethical values and commitment to
competence, the nature of evidence used to evaluate the control environment
may differ somewhat from the nature of evidence used to evaluate control
activities. While auditors examine similar types of evidence to assess both the
control environment and control activities, they often perform more extensive
inquires and observation to assess the design and implementation of control
environment subcomponents, such as the entity's code of conduct and
whistleblowing system, so they can evaluate whether employees understand
those policies and procedures, and to gain a sense as to the overall ethical tone
and perception of management's integrity. Because of the more judgmental
nature of many of the control environment subcomponents, auditors often make
numerous inquiries and perform extensive observation of client personnel in the
performance of policies and procedures to evaluate those subcomponents of
the control environment. While inquiry and observation may also be performed
to evaluate control activities, auditors frequently inspect documentation that
demonstrates a control activity was performed, such as examining signatures
on documents or matching of documentation supporting a transaction, and they
often reperform certain client performed procedures, such as the calculation of
a transaction amount.
The test data approach involves processing the auditor's test data using
the client's computer system and the client's application software program to
determine whether the computer-performed controls correctly process the test
data. Because the auditor designs the test data, the auditor is able to identify
which test items should be accepted or rejected by the computer. When using
this approach the auditor should assess the following:
How effectively does the test data represent all relevant conditions
that the auditor wants to test?
How certain is the auditor that the application programs being tested
by the auditor's test data are the same programs used by the client
throughout the year to process actual transactions?
How certain is the auditor that test data is effectively eliminated
from the client's records once testing is completed?
Parallel simulation with audit software involves the auditor's use of an
auditor-controlled software program to perform parallel operations to the
client's software by using the same data files. Because the auditor's software is
designed to parallel an operation performed by the client's software, this strategy is
referred to as parallel simulation testing. Parallel simulation could be used in the
audit of payroll by writing a program that calculates the accrued vacation pay
liability for each employee using information contained in the employee master
file. The total liability calculated by the auditor's software program would then
be compared to the client's calculation to determine if the liability for accrued
vacation pay is fairly stated at year-end.