Techniques in Auditing - Essay Example

Running Head: AUDITTING Auditing of the Institute] Techniques in Auditing: The techniques used in auditing Accsys PLC involve the following techniques: Random sampling Curve data deviation Age analysis Gap analysis Stratification of data Data Sampling: In data sampling the number of observation from the specific population is collected this is the statistical method used in auditing techniques also called statistical inference. The observations which have to be taken from the population are measured by different items which include weights age group location etc., there are many stages of sampling which includes: The provision of the definition of Accsys PLC which the auditor is concern. The setting up of many observations by making the samples or sets. The selection of different items from each sample or set of observations of Accsys PLC. The size of sample includes the number of observations from Accsys PLC. The planning process for implementation in Accsys PLC. The revision of whole process. The method of random sampling is concerned with the probability theory taking out of the combination of set of observations from the sample that has the different times probability of appearance but this probability with in random sampling is not equal. In sampling there is risk of inaccurate representation of financial date of Accsys PLC, but in random sampling there is no such risk involve. After the formation of samples the sampling errors should be find out in other types of sampling methods there is no such measures of sampling errors. There are different stages of random sampling such as stratified sampling multistage sampling simple random sampling. Fraud Detection through Ratio Analysis The use of ratio analysis technique to find out fraudulent practices is now very common, this is use by the Accsys PLC for the evaluation of doubling of entry and invoice amount doubling in the entries. The ratios find out by Accsys PLC for analyzing the data these ratios are applied over the data amounts. With the help of ratio analysis there is an identification of some activities of fraud occurs, there are three common types of ratio analysis these are: The evaluation of ratio of the highest value to the lowest value. Calculation of the highest value ratio to the second highest value. Current year ratio to previous year. The Accsys PLC work on fraudulent practices find out by the ratio analysis methods concerned with the customers charged prices of the products. It is used by the auditors to find out the ratio by the ratio of maximum sale price to the minimum sale price after the ratios determination. If there is smaller variation in the prices present it is to find out the reason of this variation it means that the customer charged the highest price or the lowest price by the ratios values indication. The auditing process through computer is also called IT and ICT auditing, many auditors who performs the audit work have different ways of doing it, for example, the main procedure which many auditors used for auditing. On computer is the evaluation of risk or fraudulent practice where ever it is and start the program by making survey report of that transaction these risks are evaluated from the last years audit reports and internet sites, after the evaluation of risk there has been made the planning for audit in this stage the computer based audit is divided in to various stages. It includes many questions over the risk statement after the planning of work ,another important work on collection of views from the senior management and lower staff should be done after their views collection a consideration given to the report and checked out all the people’s views after that an auditor makes the report for it. He or she not only write the report ones at every time they check it from the beginning that is there anything in the report which is wrong and in the end closure to report will be given. In hindsight, one can wonder if there would have been a stock market bubble without the move toward economic deregulation that began 25 years ago. The idea was that markets, freed from the shackles of government mandates and restrictions, would produce more competition, innovation and economic growth--so much more that it was worth the added risks to consumers and investors. In time, the benefits of deregulation could be calculated in the falling prices of long-distance phone calls, mortgages and airfares, the increased returns earned by savers and investors, and the surge of investment capital to the entrepreneurial side of the economy. And although some risks were laid bare in the collapse of the junk-bond market of the 1980s, and the financial crisis surrounding the demise of Long-Term Capital Management LP in 1998, they were insufficient to shake the political consensus that had formed around deregulation. Certainly no single act of deregulation contributed more to the bubble than the Telecommunications Act of 1996, which aimed to created competitive markets for voice, data, and broadband services. The act unleashed a flood of investment in wireless licenses, fiber-optic cable, satellites, computer switches and Internet sites, and accounted for much of the new capital that poured into the economy. But even as the extent of the over-investment became clear and the telecommunications industry began its financial meltdown, the Federal Communications Commission maintained its faith in deregulation, arguing that it would be folly for government to step in and try to rescue the industry and attempt to manage the transition. A similar outlook held sway at the Federal Reserve Board, which as far back as September 1996 began to debate whether it should try to prick the developing stock market bubble. In the end, nothing was done beyond Fed Chairman Alan Greenspans gentle warning about "irrational exuberance," a view the chairman seemed to subsequently disavow as he embraced the idea that a revolution in productivity was indeed creating a New Economy. The primary responsibility for policing the markets and corporate behavior rests with the Securities and Exchange Commission, whose chairman, Arthur Levitt Jr., warned early and often during the boom about the accounting games being played by public corporations, with the connivance of auditors, directors and Wall Street analysts. But Levitts efforts to reform the accounting rules and beef up enforcement were thwarted by both Republican and Democrats in Congress. They repeatedly turned aside his requests for enough funding to allow enforcement to keep pace with the increase in volume and complexity of the securities being offered. Although Levitt identified the worst areas of corporate abuse, he was unable to unwilling to use the resources he had to make a high-profile example of companies that had engaged in major-league obfuscation and earnings manipulation. Under the banner of self-regulation, the SEC had long ago subcontracted some of its oversight and rule-setting responsibilities to industry organizations or boards largely controlled by them. These include the New York Stock Exchange, Nasdaq Stock Market and the Financial Accounting Standards Board. The theory behind self-regulation was that nobody had more incentive to assure the integrity of public equity markets that the professionals whose livelihoods and status depended on it. But what the theory overlooked was that the self-regulatory bodies, operating in the name of market competition, had no competition themselves. When push came to shove, they realized their franchise was safe and investors had no alternative organizations to turn to. By the use of audit techniques, which are computer assisted, it is easy for the auditor to make those working papers, which are formed over the Microsoft with not too much checking and mistakes. The computer software’s can easily detect the detection of any fraudulent activity misrepresentation of any transaction and duplication of transactions. The checking of balances in any account is possible by the use of computers; auditors can easily apply the techniques and checked the accounts balances. With the help of computer-assisted techniques the combination of any old entry with the new one is possible and joint transactions reporting also done through its use. A computer works to perform the functions of non-stop monitoring of the data saved in it its analysis or reporting and information to the auditor if any entry is wrong or the doubling of amount. An audit of a computer application will typically contain steps to assess the integrity of the application, including the completeness, timeliness, and accuracy of the data. An audit of an operational entity, on the other hand, may rely on the data from an application system, but will probably not fully assess the integrity of that data. Thus, the auditor is at risk of drawing inappropriate conclusions. CAATS are the basic and best tools to use for transactions storing and making of final results but it is only possible if the person using them have great command over computer functions if he is not able to make the data correct and not have know how of computer, otherwise the audited work will be wrong. The computer-assisted tools involve integrity and reliability of the data an auditor must have the knowledge of performing these tests. An auditor must have the knowledge of either to use the CAATS for any client’s transactions or not to use it. Integrity and analysis of the data are very important for a person who is going to use CAATS. The results that are evaluated from the data testing gives an auditor the integrity of data if auditor has good knowledge of integrating the data he can easily use the CAATS as the best tool for audit techniques. By the use of computer assisted audit tools and techniques there is much increase in the efficiency and affectivity of the auditing process because now there are number of those transactions which takes a long time to check and their checking was not possible and are checked through the computer assisted techniques of auditing. The verification process examination of data sampling of data the simplicity of data joint transactions performance all is possible now with the use of computer assisted audit tools and techniques CAATs. The degree of risk associated with using the data in an audit is proportional to the reliance the auditor places on the results of the data analyses. When the results are an integral part of the audit, the datas reliability is crucial to satisfying the audit objectives. In such cases, the auditor should make a more complete assessment of the integrity of the data before using that data to assess the clients operations. The use of ratio analysis as the useful audit technique is very common in the detection fraud and duplicates transactions. It is called rationale it is use to find out the procedures of fraud. There is some times missing of a data and a single entry man times appears with changes amounts in the data these types of fraud practices can be easily detected through the use of rationale. There is the use of digital analysis techniques by the auditors to find out the invoice which represent even a single dollar cost a single amount appearing one time in the entries may be the case of fraud. Conclusion: There are now many companies who have developed their software’s for conducting the audit, with the introductions of computer assisted audit techniques. It is possible for auditors now to make large amount of observation in a single procedures a computer based auditing is clean and without any error it has more storage capacity that large amount of observations like millions of observation in a year can be easily recorded in the computer and their checking is also possible for the auditors. There are many audit techniques use by the auditors for making audit work clean without any mistake. Many organizations setup their generalized audit software’s to make methods of auditing more easily and without risk, this generalized software is capable of designing reading and writing the data, which is stored in the computer and perform all those functions which are the part of regular audit processes. By the use of computer assisted audit techniques the large data can be easily summarized stratified the analysis of data taking up of samples from data making up of calculations from the given data by using statistical methods too, the conversion of entries and evaluation of duplicating entries. Audit software can be used to interrogate a companys data files and identify data patterns associated with fraud. Patterns such as negative entries in inventory received fields, voided transactions followed by "No Sale," or a high percentage of returned items may indicate fraudulent activity. Auditors can use these data patterns to develop a "fraud profile" early in their review of operations. The patterns can function as auditor-specified criteria; and transactions fitting the fraud profile can trigger auditor reviews. Systems can even be built to monitor transactions on an ongoing basis. Continuous monitoring is a proactive approach to the early detection of fraud. Thus if the computer assisted audit techniques are used by those individuals who have the knowledge of using such program over computer this method of auditing by the use of computer must take a large form in any organizations auditing section. REFERENCES Computer Aided Audit Tools – Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Data_analysis_(information_technology) Accessed May 21, 2007 Data integrity and CAATTs - computer assisted audit tools and techniques Internal Auditor - Find Articles http://findarticles.com/p/articles/mi_m4153/is_n1_v53/ai_18202723 Accessed May 21, 2007 Auditing http://www.nysscpa.org/cpajournal/1999/0899/departments/D57899.HTM Accessed May 21, 2007 IT Audit – The Institute of Internal Auditors http://www.theiia.org/ITAudit/index.cfm?act=itaudit.archive&fid=275 Accessed May 21, 2007 Computer audit FAQ http://www.isect.com/html/ca_faq.html Accessed May 21, 2007 McGuckin, Robert H. and Sang V. Nguyen (1995). 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News Release, California Public Utilities Commission, CPUC-5, February 5, 1997 Read More