a) Explain the two main types of computer assisted audit techniques.
1) Test data
These are designed to test the performance of the clients' programs. What it involves is for the
auditor either using dummy data i.e. data he has created himself or live data i.e. the client's data
that was due for processing to manually work out the expected output using the logic and steps
of the program. This data is then run on the computer using the program and the results are
compared. A satisfactory outcome gives the auditor a degree of assurance that if that programme
is used continuously throughout the year, then it will perform as required. You can see that this
technique of test data falls under compliance testing work/tests of controls.
ii) Computer audit. programs (Audit software)
These consist of computer programs used by an auditor to read magnetic files and to extract
specified information from the files. They 2ire also used to carry out audit work in the contents
of the file. These programs are sometimes called enquiry or interrogation programs. They can be
written by an audit firm themselves or they can be found from software houses. They have the
advantage that unskilled staff can easily be taught to use them,
b) Argue the case for and against a company outsourcing its electronic data processing to a
computer bureau.
Case for
• Swiftness and expertise: Most of the times tasks are outsourced to vendors who specialize
in their field. The outsourced vendors also have specific equipment and technical
expertise, most of the times better than the ones at the outsourcing organization.
Effectively the tasks can be completed faster and with better quality output
• Concentrating on core process rather than the supporting ones: Outsourcing the
supporting processes gives the organization more time to strengthen their core business
process.
• Risk-sharing: one of the most crucial factors determining the outcome of a campaign is
risk-analysis. Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better.
• Reduced operational and recruitment costs: Outsourcing eludes the need to hire
individuals in-house: hence recruitment and operational costs can be minimized to a great
extent. This is one of the prime advantages of offshore outsourcing.
Case against
1. Loss of managerial control
Whether you sign a contract to have another company perform the function of an entire
department or single task, you are turning the management and control of that function over to
another company. True, you will have a contract, but the managerial control will belong • to
another company. Your outsourcing company will not be driven by the same standards and
mission that drives your company. They will be driven to make a profit from the services that
they are providing to you and other businesses like yours.
2. Hidden costs
- You will sign a contract with the outsourcing company that will cover the details of the
service that they will be providing. Anything not covered in the contract will be the basis for you
to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to
review the contacts you will sign. Remember, this is the outsourcing company's business. They
have done this before and they are the ones that write the contract. Therefore, you will be at a
disadvantage when negotiations start.
3. Threat to security and confidentiality
The life-blood of any business is the information that keeps it running. If you have payroll,
medical records or any other confidential information that will be transmitted to the outsourcing
company, there is. a risk that the confidentiality may be compromised. if the outsourced function
involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.),
this must be taken into account. Evaluate the outsourcing company carefully to make sure your
data is protected and the contract has a penalty clause if an incident occurs.
4. Quality problems
The outsourcing company will be motivated by profit. Since the contract will fix the price, the
only way for them to increase profit will be to decrease expenses. As long as they meet the
conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond
to changes in the business environment. The contract will be very specific and you vk ill pay
extra For changes.
5. Tied to-the financial well-being of another company
Since you will be turning over part of the operations of your business to another company, you
will now be tied to the financial well-being of that company. It wouldn't be the first time that an
outsourcing company could go bankrupt and leave you holding-the-hag.
Kavungya answered the question on May 15, 2019 at 08:41
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