The Information Systems Audit

Sajid H. Khan

Sajid H. Khan

Executive Director

Executive Director

Technology and Security Risk Services

Technology and Security Risk Services

Ernst & Young Ford Rhodes Sidat Hyder

Ernst & Young Ford Rhodes Sidat Hyder Institute of Chartered Accountants of Pakistan

Back Office Batch Apps

MIS Online Integrated

Applications/ ERP DAS E-Commerce / Home Computing Knowledge

IS Environment

The IT audit focuses on determining risks that are relevant to information assets, and in assessing and evaluating controls in order to reduce or mitigate these risks.

Any audit that encompasses review and evaluation (wholly or partly) of automated information processing systems, related non-automated processes and the interfaces between them.

The IT audit's agenda may be summarized by the following questions:

• Integrity - Will the information provided by the system always be accurate, reliable, and timely?

• Confidentiality - Will the information in the systems be disclosed only to authorized users?

• Availability - Will the organization's computer systems be available for the business at all times when required?

• Financial audits • Operational audits • Integrated audits • IS audits • Specialized audits • Forensic audits

Classification of Audits

Specific goals of the audit

• Confidentiality • Integrity

• Reliability

• Availability

• Compliance with legal / regulatory requirements

Audit Objectives

Types of IT Audits

• IT Policies & Procedures Review and Gap analysis

• Implementation Reviews (e.g. SAP / Oracle / JD Edwards) • IT Security Reviews

• IT Forensic Investigations • Application Integrity Reviews • Business Continuity

• IT Disaster Recovery

These reviews may be performed in conjunction with a financial statement audit, internal audit, or other form of attestation/special engagement.

Types of IT Audits

System Implementation Review - Example

• Business process/application controls

• Report Testing and documentation

• Testing (unit, volume, user)

• Data Cleansing and Conversion

• Segregation of Duties

• Roll out strategies

Various Standards and Frameworks

• A framework with 34 high-level control objectives

– Planning and organization

– Acquisition and implementation – Delivery and support

– Monitoring and evaluation

• Use of 36 major IT-related standards and regulations

CobIT

Framework for the ISACA IS Auditing Standards

• Guidelines

• Procedures

ISACA - IS Auditing Standards

Framework

Standards

• Must be followed by IS auditors

Guidelines

• Provide assistance on how to implement the standards

Procedures

• Provide examples for implementing the standards

Objectives of the ISACA IS Auditing Standards

• Inform management and other interested parties of the profession’s expectations concerning the work of audit practitioners

• Inform information system auditors of the minimum level of acceptable performance required to meet

professional responsibilities set out in the ISACA Code of Professional Ethics

S1 Audit charter

S2 Independence

S3 Ethics and Standards

S4 Competence

S5 Planning

S6 Performance of audit work

ISACA IS Auditing Standards Framework (cont.)

S7 Reporting

S8 Follow-up activities

S9 Irregularities and illegal acts S10 IT Governance

S11 Use of risk assessment in audit planning S12 Audit Materiality

ISACA IS Auditing Standards Framework (cont.)

S13 Using the work of other Experts S14 Audit Evidence

S15 IT Controls

Skills and Competence

An ideal background for an IS Auditor

»Business

»Auditing

Skills and Competence (Contd.)

Specialized IS skills may be needed for an auditor to:

• Obtain understanding of the accounting and internal control systems affected by the IS environment.

• Determine the effect of IS environment on the assessment of risk at each level (e.g. process, account, transactions level)

• Design and perform appropriate tests of control and substantive procedures e.g. data analytics.

• Short and Long term planning

• Considerations

– New control issues

– Changing technologies

– Changing business processes – Enhanced evaluation techniques

IS Audit Resource Management & Planning

• Maintenance of their technical competence • Assignment of audit staff

• An information technology audit, or information systems audit, is an examination of the controls within an Information technology (IT) infrastructure.

• It is a process of collecting and evaluating evidence of an

organization's information systems, practices, and operations.

• The evaluation of obtained evidence determines if the information systems are safeguarding assets, maintaining data integrity, and operating effectively to achieve the organization's goals or objectives.

A Typical IS Audit Cycle

• Planning

• Understand the Process(s)

• Walkthrough the Process/Controls. – Design of control

• Test the Controls

– Operating Effectiveness • Conclude and Report

Internal control objectives apply to all areas, whether manual or automated. Therefore, conceptually, control objectives in an IS environment remain unchanged from those of a manual environment.

Key Controls

• A key control is a member of a set of controls that management identifies and relies upon in order to mitigate the risk of financial misstatement.

• In other words it is the main control that addresses the risk.

Compensating Controls

• A compensating control is a control that would be in place to mitigate the risk of damage in the event a key control failed.

– Example: Key Control may be approval prior to access to systems but if it fails then compensating control might be the monthly monitoring of user access thus minimizing the risk to a period of one month.

Prevent / Detect Controls

Prevent Controls Detect Controls

Pre-Production Post Production

Production

Elements of an Effective IT Audit

Knowledge

•Business •Technology

•Best Practice Tools and_Methods

•Checklists

•Work Programs •Automated Tools •Guidelines

Assessing Information Technology risks

• Risk assessments should identify, quantify and

prioritize risks against criteria for risk acceptance and objectives relevant to the organization.

• Should be performed periodically to address changes in the environment, security requirements and when significant changes occur.

Treating security risks

• Each risk identified in a risk assessment needs to be treated.

• Controls should be selected to ensure that risks are reduced to an acceptable level

Scoping

Risks identified within the processes / areas

Identification of Key and compensating Controls

Application Scoping

• Application

• Operating System • Database

Management Controls • Strategy • DRP • Security Policy IT Governance

• Policies and Procedures • Compliance • Security Environment Application, Databases Networks etc. • IT General Controls • Application Controls • Optimizing Database Performance • Reducing Network Vulnerabilities

Scoping

IT Governance

• Controls at the Company Level that create,

foster, and sustain a controlled IT environment.

Examples:

– IT Strategic Planning

– IT Policies and Procedures – IT Organization Structure – Properly segregated duties – Fraud Identification

– Training and Education

IT General Controls: Layers of Controls

Business ProcessesDataData

ITGC Domains

• ITGC Domains.

• Program Change Management

• Logical Access

• IT Operations (Backup & Recovery, Job

Change Management

• Objective: To provide reasonable assurance that only appropriately authorized, tested, and approved changes are made to in-scope systems.

• Types of changes that fall under change management

• Program Development/Acquisition • Program change

• Maintenance (Ex: Database, Operating System) • Emergency Changes

• Configuration/Parameter Changes (Ex: Physical hardware configuration and parameter settings)

Change Management (cont.)

• Components of the IT Environment: • Applications

• Interfaces

• DBMS (Database Management System) • Network and Operating Systems (OS) • Typical Key Controls

• Changes are Authorized • Changes are Tested

• Changes are Approved • Changes are Monitored

Logical Access

• Objective: To determine that only authorized persons have access to data and applications (including

programs, tables, and related resources) and that they can perform only specifically authorized functions.

• Levels of the logical access path

• Network / Operating System • Application

Logical Access (cont.)

• General Systems Security Settings

– Platform Specification

• Password Configuration

• Systems User Administration

– New User setup – Change/Transfer – Termination

Logical Access (cont.)

• User Access Reviews

• Segregation of Incompatible Duties (SOD)

• Request access • Approve access • Provision access

IT Operations

• To determine that the critical data is properly backed-up so that it can be accurately and completely recovered if there is a system outage or data integrity issue.

• To determine that only appropriate users have the ability to make changes to job scheduling.

• To determine that there is a problem and incident management process in place.

IT Operations (continued)

• Backup & Recovery

• Job Scheduling

• Problem & Incident Management

• Data Center Walkthrough

Application Controls

• An application control is an automated control that is programmed within a system to perform the same function over and over again.

– Edit Checks – Validations – Calculations – Interfaces

Application Controls

Embedded Control – System is programmed to perform the control as a result of either custom coding or packaged delivery of that functionality.

Configurable Control – System has the capacity to perform the control depending on its setup, but may have been configured differently. Used especially in the context of ERP systems.

Application Controls - Testing

– Re-performance via walkthrough – Inspection of authorization

• Configurable Control

– Inspect configuration

– Re-performance via walkthrough – Inspection of authorization

IT Dependent Manual Controls

• An IT Dependent-Manual Control is any control activity where both an individual and an IT output are

combined.

Example - System generated report review.

• Also called “Computer Assisted Audit

Techniques” (CAATs).

• CAATs enable IS auditors to gather

information independently.

• Multiple tools available to perform data

analytics.

• Functions supported by automated tools

Considerations before utilizing CAATs

• Ease of use

• Training requirements

• Complexity of coding and maintenance • Installation requirements

• Processing efficiencies

• Confidentiality of data being processed

Data Analytics (cont.)

• Completeness of the Population

• Time Period Coverage

• Key Control Tools – Scoping

• Additional Procedures – Controls Testing

• Impact on Application/ITDM testing if ITGC not effective

• Exit interview

– Realistic recommendations

– Implementation dates for agreed recommendations

• Presentation techniques

– Executive summary and Visual presentation

Communicating Audit Results

Audit report structure and contents

• An introduction to the report (e.g. objectives, scope, procedures performed)

• High level Audit findings and recommendations • The IS auditor’s overall conclusion and opinion

• The IS auditor’s reservations with respect to the audit • Detailed audit findings and recommendations

• Planning, audit scope and objectives • Description on the scoped audit area • Audit program(s)

• Audit steps performed and evidence gathered • Other experts used

• Audit findings, conclusions and recommendations

Audit Documentation