CHAPTER ONE
INTRODUCTION TO AUDITING
This chapter attempts to explain why Auditing exist as a discipline. It first explain the concept of stewardship accounting. The objectives of auditing are best explained with an introduction to auditors report and the organization of the Auditing profession.
The different types of audits are introduced in the final part of this chapter.
STEWARDSHIP ACCOUNTING
Stewardship Accounting according to Kola Olowookere are accounts rendered by managers to owners of the business. Stewardship account led to the development of auditing. This reporting and accounting is usually done by means of financial statement. Examples are:- balance sheet, profit and loss account and cash flow statement .
Auditing can be defined from two different perspectives:- One, auditing as a tool put in place by the management of the company to clock the internal control system operation if they are strictly adhered to.
In other words, Auditing according to The Consultative Council of the Accountancy Bodies defines Audit as the independent examination of an expression of opinion on the financial statements of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.
AUDIT EVIDENCE
According to the Consultative Committee of Accounting Bodies (CCAB) in the United Kingdom in its auditing standard of April 1980 stated among other things:-
“The auditor should obtain relevant and reliable audit evidence, sufficient to enable him draw reasonable conclusions”.
Audit evidence is information obtained and recorded by the Auditor in arriving at the conclusions on which he bases his opinion on the financial statements.
OBJECTIVES OF AUDITING
The primary object of an audit is not to detect fraud, errors and irregularities. The primary duty is to produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading and using them can rely in them. However, the secondary object is to:
(a) To detect errors and fraud
(b) To prevent errors and fraud
(c) To provide moral check
(d) To show true and fair view of his opinion
(e) To ensure the reliability of the internal control system
RESEARCH HYPOTHESES
Hypotheses formulated for this study “The impact of computer in auditing” a case study of Tantalizer Fast Food Ikotun will include the following:
H1 Computerization has enabled employees carry out their task and responsibilities effectively, efficiently and quickly meet the management demand.
Ho Computerization has not enabled effectiveness and efficiency in management.
H1 Computer has a positive effect in accounting system in relation to the productivity of accounting personnel
Ho Computer does not have a positive effect in accounting system in relation to the productivity of accounting personnel
H1 Computer has created employment opportunity of accounting personnel.
Ho Computer has only led to unemployment of accounting personnel.
METHODS OF OBTAINING AUDIT EVIDENCE
According to Kola Olowookere, the five methods of obtaining audit evidence are:-
(a) Inspection: It involves reviewing documents or examining records, documents or tangible assets. Inspection of tangible assets provides the auditor evidences as to their existence but not necessary as to their ownership, cost or value.
(b) Observation: Observation involves looking at an operation or a procedure being performed by others so as to determine the manner of its performance. Observation provides reliable evidence to the manner of the performance at the time of the observation but not at any other time.
(c) Enquiry: This involves seeking relevant information from knowledgeable persons inside and outside the organization (management, staff, solicitor, bankers, parent company, valuers) formally or informally, orally or in writing. The degree of reliability that the auditor attaches to evidence obtained in this manner is dependent on his opinion as to the competence, experience, independence and integrity of the respondent.
(d) Computation: Checking the accuracy of accounting records or performing independent calculations. The reliability depends somewhat on the accuracy of the underlying records.
(e) Analytical Review: It involves studying significant ratios, trends and other statistics and investigating any unusual or unexpected variations. Analytical review proves confirmation evidence for the audit procedures.
TYPES OF AUDIT
(a) Statutory Audits: A statutory audit is an audit carried out by an independent auditor. This independent auditor is one who is not in the employment of the organization in whatever manner he considered and in accordance with the enabling statute. No restriction whatsoever may be put upon the auditor in the discharge of his statutory duties.
(b) Private Audit/ Non- Statutory: The private audit is an independent audit, it is conducted because the owners desire it, not because the law requires it. Examples are audits of the account of sole trader, partnership, sole proprietors, unions.
(c) Interim Audit: This is an audit which is completed to a particular date within the accounting period for example a quarter or a half- year. The interim audit is usually followed at accounting period end by the final audit.
(d) Internal Audit: An internal audit is one conducted by an employee of a business into any aspect of its affairs. It is also an appraisal of policies, pans, procedures, activities and records of the organization by specially assigned staff. It ensures that the organizations internal control system is operating satisfactorily.
(e) Final Audit: Final Audit is a process that is carried through to completion in one continuous session. Although it may be commenced before the end of the end of the accountingperiod, it is completed at least after the end of the accounting period.
INTRODUCTION TO COMPUTER
Computer is defined as a device capable of accepting data in the form of facts and figures, applying prescribed processes to the data and supply the result of these processes as meaningful information.
ANALOG (ANALOGUE) COMPUTER
These are computers that vary continuously such as variations in temperature, speed, chemical composition of petroleum products or the amount of current flowing through electrical conductor. They are used for a wide variety of industrial and scientific applications that require the processing of continuous data.
DIGITAL COMPUTER
This type of computers counts discrete numbers and figures. They process discrete data information and operate on variable whose magnitude are limited or restricted to certain specific limits e.g. the number of people in a family. They are used for accounting, forecasting, e.t.c. Examples are micro computers, mini computers, mainframe computers e.t.c.
HYBRID COMPUTER
This combines of the features of both digital and analog. They are used in specialized applications where both kinds of information need to be processed in a single system. They are found in scientific and technical application.
THE DIGITAL COMPUTER
A Digital computer is an electronic device that performs high speed
Mathematical or logical calculations, assemblies, store, correlates processes and print information derived from coded data in accordance with a pre- determined programme. A digital computer consist of a Central Processing Unit (CPU) to which wires and peripheral devices (input unit, output and backing storage devices) are attached. The CPU consist of three main parts:-
CONTROL UNIT
This control all the operations of machine and guides the execution of the instructioncontained in the programme. The unit contains function decoder, address, encoder, register, timing pulse generator, Programme instruction,control and instruction counter.
ARITHMETIC LOGICAL UNIT (ALU)
This unit does the arithmetic and logical operations of the instructions. It contains the accumulator register and function circuits on arithmetic, discrimination and data transfer.
MEMORY IMMEDIATE ACCESS STORE (AIS) UNITS
This hold the programme which is being executed together with the data on which the programme is currently working. The unit through the input buffer, output buffer, working store and program store.
TYPES OF DIGITAL COMPUTER
There are two types of digital computers:
Special Purpose Computer:
Certain computers are designed for a particular singular operation. E.g. Telecommunication system.
General Purpose Computer
This digital computer is viewed as a set of machines carefully connected to Perform the data processing functions. E.g. Micro Computers, Mainframe Computers.
THE PURPOSE OF STUDY
It justifies why the study should be undertaken and also the main purpose of the research study. The research is out to examine a recommend solution if need be to the problems below.
The above justifies why the study should be undertaken and also the main purpose of the research study. The research is out to:
(a) To examine the problems encountered in the process of changing from manual accounting to electronic data processing system.
(b) To investigate the problems encountered in the process of using computer in the audit department.
(c) To show the relevance of computerized accounting system.
(d) The difference in terms of efficiency between the manual and the computerized accounting system.
SIGNIFICANCE OF STUDY
The study is not only meant for the successful completion of the National Diploma in Accounting Programme but also to familiarize accountant with the uses and operation of computer in an auditing profession.
The research is also important because it examines how accountants/ auditors are taking the challenges by the use of computers. It will as well examine the relevance of computer to accountants, the basis for determining whether to change from manual to computerized system. The efficiency of computer system as compared with manual system and the problems of the computerized accounting/ Auditing systems.
The project will also help readers of this project to have a useful idea of computerized and auditing system and recommend the area for further research in the field of computer as related to auditing and accounting.
STATEMENT OF PROBLEMS
One of the historical feature of most organization in Nigeria is manual operations, its limitations call for need to look into a more realistic approach that is workable, reliable and efficient computerization. The research intends to investigate into
other auditing firm either public or private establishment that have gone computerized and have problems of handling of records, inadequacy and delay in getting information so as to know the extent of their problems.
The research has been narrowed down to computerization of accounting system of the Tantalizer Fast Food Plc, Ikotun only as a case study because of time constraint. The area of computerization of accounting system is very wide but the
research is limited to electronic data proceeding system and other area computerized accounting system, which shall not be dealt with.
The responses of official of the fast food chosen as a case study have not been encouraging. There is also delay in getting information from the company.
The problem of changing from manual to computer is very rigorous and expensive.
Despite the advantages of computerization, it still has some problems like:
(i) Lack of rudimentary knowledge and basic skill required in handling computers delays business operations.
(ii) Cost of procurement and cost of training constitute another problem.
(iii) Business acts are so diverse that adapting computer to all these complexities may prove unachievable.
(iv) To a newly established financial institution, computerization is a luxury which may not be seen as necessary.
SCOPE AND LIMITATIONS
This research has been narrowed down to computerization of accounting system of the Tantalizer Fast Food, Ikotun as a case study because of the time constraint.
It should be borne in mind that area is very wide but the research is limited to electronic data processing system and financial accounting processing.
The responses of the official of the establishment chosen as a case study have not been encouraging.
THE COMPUTER IN OPERATION
The purpose of every organization is to provide goods and services. To achieve these defined purposes involves making effective discussions. Decision that anticipate problems and opportunities such decisions are made possible through information that is timely, accurate and relevant to the specific task.
There is an ever growing awareness of the need for business men and Accountants to have a good knowledge of data processing techniques. This is evidenced by the fact that more and more institutions and professional bodies are including data processing as a subject in their syllabus. It is the purpose of the information system to supply these requirements.
The term, information system , covers the whole scheme of data collection, organization, processing and presentation most often, closely associated with the computer. The information system covers all the uses of processing of information within an organization.
Data corresponds to discrete facts phenomena from which one gains information about the real world.
Data can be defined as the aid fact about the activities of a business which may be represented in the form of numbers and alphabetic characters or symbols e.g. hours worked by an employee, quantity of materials used from store e.t.c.
INFORMATION
This is data which has been processed through system. It is the relevant knowledge produced from data processing system for specific purpose.
An information system is a set of interconnected procedures, the purpose of which is to provide managers at all levels and in all functions of an organization with the information necessary to enable them to make timely and effective planning.
Co-ordination, controlling and discussing information is an economic commodity thatmust be sold, bought, stored, exchanged and consumed by any person that aims beyond mere existence.
DATA PROCESSING
This is the term given to the process of collecting all terms of source data together and converting them into information.
Data processing operations are concerned in the followings:
1. Checking.
2. Sorting.
3. Calculating.
4. Storing.
5. Filling and Retrieval.
6. Communicating.
DATA PROCESSING INFORMATION
A good information must be relevant, complete, accurate, timely and must have a good presentation for easy assimilation . Information system has its formal and informal element.
The formal element information is processed in a routine basis. The computer consists of two interrelated domain namely: The Hardware and Software. The Hardware is the machine itself and attached peripherals. While the software is the set of sequenced instruction that drive the hardware. Computers are classified broadly into three categories namely: Micro Computer and Mainframe Computer.
The mainframe computer is a big machine with a lot of composes peripherals with high processing speeds, which have a substantial effect on the machine cost. The maincomputer is between the extremes of mainframe and micro computer. Ithas more capacity that the micro but has less capacity that the mainframe.
ADVANTAGES OF MICRO COMPUTER
Today, micro computer has been widely accepted due to the following:
(a) Cheap cost
(b) Ease of operation.
(c) No specialized training required.
(d) No special room conditioning.
(e) Portable and compact.
How or when is computerization done? Computerization is done when:
1. There is large volume of data to be processed using predefined procedure.
Examples are: Payroll, billing, and store cards etc.
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