The practical difficulties I would encounter as an auditor as a result of the proposed introduction of a computerized accounting system would arise from the characteristics of a computerized system which distinguish it from a manual system.
These difficulties and the ways they can be overcome include: –
1. Concentration of controls in the computer department.
The need to standardize procedures and utilize the computer resources of Leather merchants may lead to this. There is a danger of deliberate or inadvertent corruption of data of which other departments are unaware by the computer department.
During my audit work, especially during the planning stage, I will identify the extent of these controls. If such controls are concentrated in the computer department, the adequate functioning of the department will be fundamental to my audit.
2. Lack of primary records.
If Leather Merchants introduce an on-line system, then some conventional day books (such as purchase journal) may not be created. Originating documents (such as sales order) may not be created as well.
To eliminate this problem, the auditor should advise Leather Merchants to provide for computer-generated reports which will keep track of these activities.
3. Loss of audit trail
A computerized system is usually designed to limit the volume of printed data. Control is implemented by exception reporting principles so that detailed print outs of magnetically stored data are not available.
The auditor, is therefore unable to trace an individual transaction through the system from originating document to financial statements (loss of visible audit trail.)
This may result in a need for the auditor to use computer assisted audit techniques to obtain appropriate evidence that controls have functioned adequately.
4. Data needed for audit purposes may be overwritten.
When data is stored on magnetic tape or disk, it will eventually be overwritten with new data.
The auditor will need to plan audit testing to ensure that the appropriate data is available to him. He may need to make frequent visits to his clients‘ premises to ensure that he covers an adequate spread of transactions during the year.
5. The need for specialist expertise.
It is important that the auditor employs competent staff to carry out the audit of Leather Merchants.
This may prove rather expensive, as staff need to be knowledgeable in computer functions and processes.
6. Availability of computer time
The use of computer assisted audit techniques involves the use of the client‘s computer facilities. There may be need to organize such facilities well ahead of the required dates.