Briefly describe three strategies for testing internal controls when information technology is used for significant accounting processing.
Assessing control risk based on user controls – If user controls exist, such as a user in a user department comparing computer-generated output with source documents supporting the transaction, the auditor can test the controls directly.
Planning for a low control risk assessment based on application controls –These are automated controls, in which the auditor should test the computer application controls, test computer general controls, and test the manual follow-up of exceptions noted by application controls.
Planning for a high control risk assessment based on general controls and manual follow-up – This strategy emphasizes tests of details. When the auditor tests general controls, he or she will usually learn about the effectiveness of the design and testing of application controls. In addition, the auditor may be able to make inferences about the effectiveness of application controls in identifying exceptions through inquiry of knowledgeable individuals who perform manual follow-up procedures.
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