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THE IMPACT
OF COMPUTER IN AUDITING
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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