AN EVALUATION OF THE ROLE OF AUDITING IN A COMPUTERISED SYSTEM

CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF STUDY

The origin of auditing

The practice of auditing had the origin in the necessity for the institution of some system upon person whose business it was to record the receipt and disbursement of money on behalf of others.

          When a company is established under the companies and allied matters act 1990, as public company, the mining of such company is normally vested in the care of management the earners of the business i.e. the shareholders are usually not involved in the day to day activities of the company, there is thus the need for ran independent person or group of persons to examine the record on behalf of the owners the person (s) whose duty it was to report on such record to the owners is the “auditor”. The word “audit” was derived from the Latin word “audile” meaning to hear.

          In medieval Britain, auditor were appointed by feudal Barons to ensure that the revenue produced by their serfs and tenant revenues farmers were accurately accounted for and that their serfs were not cheating or hiding revenue due for the landlord. The landlord rarely became involved in the management of their estates and would simply rely upon the properly verified or substantiated accounts of their employees.

          However, in the remote times, auditors works were portrayed in ancient Egyptians wall painting and their activities were recorded in the writing of the early Roman empire. During this period, audit was confined to ascertaining whether the acting party had properly accounted for the receipt and all the payment on behalf of his principal. This made the acting party just merely a cash auditor. The modern audit however, include not only cash transaction but also the verification of the finance position disclosed by the balance sheet and the profit and loss account of the undertaking

Definition and scope of auditing

Definition there are various definition given to auditing by different bodies but having the same meaning.

          The international auditing practice committee (IAPC) has defined an audit as “an independent examination of and the expression of an opinion on the financial statement of an enterprise by an appointed auditor in accordance with the terms of his engagement and in compliance with relevant statutory obligation and professional requirement.

          The auditing standard and guideline of the consultative committee of the accountancy body (CCAB) has defined an audit as an independent examination of an expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevance statutory obligation”.

          Okolo JUT (1987) expressed that “an audit could be conscientious objective examination of and inquiring in any statement of account relating to money in money worth, the underlying document and the physical assets where possible will enable the auditor to form an opinion as to whether or not the statement of account present a true and fair view of whatever it purport to represent and to report accordingly”.

Scope of an audit

By scope of an audit, we mean the area which the audit work covers. It bothers on critical examination and verification of the accuracy of a financial statement by  an independent auditor and this scope depend on a number of actors such as:

vThe type of audit work to be carried out

vThe size of the organization

vThe nature of the business concerned

vThe skill and experience of the staff involved

vThe qualification of the staff  involved and

vThe objective of such audit

Nature and purpose of auditing

vNature of an audit:

The day to day running activities of the company is vested on the directors. Their responsibility is to ensure that the possibility of fraud and error is reduced if not eliminated; they set up a system of internal control for various check and procedure in order to control the recording of the business transaction. Upon engagement of the auditor for any audit assignment, the work is performed at the event premises.

The audit work is a two stage operation for each year in which case, the first stage is a system audit whereby the audit is conducted to a particular date within the accounting period this first stage is also known as interim audit

Stage two is that the audit is carried through to completion in one continuo’s session which involves verification of items in the final accounts.

Audit are performed by audit team comprising of audit trainees and qualified accountant. A manager will oversee their work while the actual audit is signed by one of the partners in the name of the audit firm.

Purpose of an audit

 The main and statutory object of an audit is to give a report on the view presented by the account and statement prepared by the client and his staff in accordance with the term of the audit appointment. The above object is the primary purpose of an audit, in which case the auditor is to conduct such test and enquires as he considers necessary to form his opinion.

          However, other secondary purpose includes:

vTo detect errors and fraud

vTo prevent errors

vFraud by the deterrent and moral effect of the audit

vTo provide spin – off effect,

vAssisting client with a accounting system taxation service

vFinancial and other consultancy work

1.2            THE ELECTRONIC DATA PROCESSING SYSTEM

The advent of electronic data processing (EDP) or computer has had a great influence on the auditing processes

          Auditors have always been concerned with problem associated with making time and fair report and form their trailing and experiences, they are able to handle these difficulties. Before the advancement of the data processing technology or computer, the processes of auditing, accounting and other business data were carried out manually.

          Development in computer technology are changing the art and science of auditing which complement book keeping and accounting practice of modern business world.

          Computer is now taking over the traditional purpose of accountant. Like calculation and data processing within business enterprises.

          In order to be able to function effectively the new generation of auditor need to acquaint them with a working knowledge of computer operation and technique of data processing in a computer based accounting environment.

          Auditor of today needs not be  a computer export, but he must be computer literature in order  to monitor the work flow. As a result of the forgoing fact, the student of ICAN professional examination II are expected to write or be tested on management information service (MIS) to acquaint themselves with computer term and appreciation.

          As the use of computer is irrelevant to the accounting and auditing concept, the only compelling reason for the use of computer in accounting courses is that accountant need to deal with computer based accounting information system and their subsequent auditing.