Question

Ken Smith, the partner in charge of the audit of Houghton Enterprises, has asked you to join the audit team that is planning an audit of tjis client that the firm has audited for the last four years. As part of the planning process, it was learned that the client recently adopted an IT-Based Accountingsystem to replace its manual system. You have been asked to consider the audit implications of this change.

Required

Briefly explain in two to three sentences how each one of the components of the client's internal control may be affected by the client's change to an IT-based accounting system.  Organize your answer as follows:

First Internal control component:

Effect of change on the component.

Second Internal Control component:

Effect of change on the componenet

Third Internal Control Component

Effect of chnage on the component

Fourth Internal Control Component

Effect of change on the component

Fifth Internal Control Component

Effect of channge on the component  

Answer 1

1) Risk Assessment : In an IT based accounting system there is more number of risks than normal accounting system. These is a threat of System hacking, or system breakdown etc. So an auditor should ,check these risks also in an IT based accounting system.

2) Control activities : The IT system should be controlled by technically qualified employees and every one should not be given access to the system records. The system records should be properly backed up also.

3) Control environment : Responsibility should be delegated to the officers carefully. There should be a proper structure and hierarchy in the company so that the data flow will be in a proper way. The server should be properly secured with security software etc. Employees should be trained an frequent interval.

4) Information and communication : The top management decisions should be properly communicated to the bottom level employees and the concerns of the employees regarding the new IT based accounting etc should also be exchanged properly to the top management, so that they can take action according to the ground level circumstances.

5) Monitoring : Test check the systems and software's regularly, to make sure there is no malfunctions. Monitor the work of employees, and make sure one's work is always cross checked by another employee to avoid doing fraud.