Question

Why does an auditor need to understand a client’s IT system? Explain how IT affects the financial statements.

Answer 1

An auditor needs to understand a client’s IT system because of the fact that an understanding of the client’s IT system will give the auditor an understanding of its client’s business processes that are relevant to its financial reporting. The business process of the clients depends on the IT system that they use and this in turn helps the auditors to determine the extent of compliance with accounting laws and regulations at the end of the client. Information and communication is an important element and part of internal control framework for any company and IT system is an integral part of information and communication. Hence it is important for an auditor to understand a client’s IT system.

IT significantly affects financial statements. A robust IT structure within a company will ensure that all accounting transactions are properly recorded and recorded in a timely manner. It will also ensure that the financial and accounting transactions that are being recorded are error free and are in compliance with accounting norms and standards. As such we can say that a proper IT infrastructure helps companies to ensure that their financial statements provide a correct, true and error free picture of the financial health of the company and its business.