cisa ch 1

© Copyright 2013 ISACA. All rights reserved.1

TRUST IN, AND VALUE FROM, INFORMATION SYSTEMS

ISACA®


2013 CISA Review Course

CHAPTER 1THE PROCESS OF AUDITING INFORMATION

SYSTEMS


About Me….

• Bharat Raigangar– Director – Corporate Service Advisory Inc

» Offices in United States of America, UAE & India

– Country Head of Corporate Security & Fraud Risk• Royal Bank of Scotland – Middle East & Africa

– President of ISACA UAE Chapter – 2010 & 2011– Board Member from 2004– Board Member of Association of Certified Fraud Examiner– Certification – C-CISO, CRISC, CGEIT, CISM, CISA, CIA, CFE,

CICA, CFAP, DBM, MBC


About My Organization

• Corporate Governance– Information Governance & Control– Business Process Re-Engineering

• Corporate Risk Management• Fraud Management• Records Management• Business Resilience• Health & Safety• Specialized Training• M&A Risk Advisory• General Advisory…..


Domains

• The Process of Auditing Information System (14%)

• Governance and Management of IT (14%)• Info. System Acquisition, Development and

Implementation (19%)• Info. System operations, maintenance and

support (23%)• Protection of Information Asset (30%)


Course Agenda

• Learning Objectives

• Discuss Task and Knowledge Statements

• Discuss specific topics within the chapter

• Case studies

• Sample questions


Exam Relevance

Ensure that the CISA candidate…Has the knowledge necessary to provide audit services in accordance with IT auditstandards to assist the organization with protecting and controlling information systems

The content area in this chapter will represent approximately 14% of the CISA examination (approximately 28 questions).


The Process of Auditing Information Systems

Domain definition:• Provide audit services in accordance with IT

audit standards to assist the organization in protecting and controlling information systems.


Learning Objectives

Ensure that the CISA candidate has the knowledge necessary to provide audit services in accordance with IT audit standards to assist the organization with protecting and controlling information systems.


Topics

• Management of the IS Audit Function• ISACA IT Audit and Assurance Std & Guideline• Risk Analysis• Internal Controls• Performing an IS Audit• Control Self-Assessment (CSA)• Evolving IS Audit Process• Case Studies• Q&A


Domain 1Task Statements

There are five tasks within this domain that a CISA must know how to perform:

T1.1 Develop and implement a risk-based IT audit strategy in compliance with IT audit standards to ensure that key areas are included.

T1.2 Plan specific audits to determine whether information systems are protected, controlled and provide value to the organization.

T1.3 Conduct audits in accordance with IT audit standards to achieve planned audit objectives.


Domain 1Task Statements

T1. 4 Report audit findings and make recommendations to key stakeholders to communicate results and effect change when necessary.

T1.5 Conduct follow-ups or prepare status reports to ensure appropriate actions have been taken by management in a timely manner.


Domain 1Knowledge Statements

There are 10 knowledge statements within the process of auditing information systems domain:KS1.1 Knowledge of ISACA IT Audit and Assurance Standards,

Guidelines, and Tools and Techniques; Code of Professional Ethics; and other applicable standards

KS1.2 Knowledge of risk assessment concepts, tools and techniques in an audit context

KS1.3 Knowledge of control objectives and controls related to information systems

KS1.4 Knowledge of audit planning and audit project management techniques, including follow-up



KS1.5 Knowledge of fundamental business processes (e.g., purchasing, payroll, accounts payable, accounts receivable) including relevant IT

KS1.6 Knowledge of applicable laws and regulations that affect the scope, evidence collection and preservation, and frequency of audits

KS1.7 Knowledge of evidence collection techniques (e.g., observation, inquiry, inspection, interview, data analysis) used to gather, protect and preserve audit evidence



KS1.8 Knowledge of different sampling methodologiesKS1.9 Knowledge of reporting and communication techniques

(e.g., facilitation, negotiation, conflict resolution, audit report structure)

KS1.10 Knowledge of audit quality assurance systems and frameworks


1.2.1 Organization of the IS Audit Function

• Audit charter (or engagement letter)– Stating management’s responsibility and objectives

for, and delegation of authority to, the IS audit function

– Outlining the overall authority, scope and responsibilities of the audit function

• Approval of the audit charter

• Change in the audit charter


1.2.2 IS Audit Resource Management

• Limited number of IS auditors

• Maintenance of their technical competence

• Assignment of audit staff


1.2.3 Audit PlanningShort-term planning Individual Audit Planning

Long-term planning Understanding of overall environment

Things to consider • Business practices and functions

• New control issues • Information systems and technology

• Changing technologies

• Changing business processes

• Enhanced evaluation techniques


1.2.3 Audit Planning (cont.)


1.2.4 Effect of Laws and Regulations on IS Audit Planning

Regulatory requirements generally describe the:

• Establishment

• Organization

• Responsibilities

• Correlation of the regulation to financial, operational and IS audit functions


1.2.4 Effect of Laws and Regulations on IS Audit Planning (cont.)

Steps to determine compliance with external requirements:• Identify external requirements

• Document pertinent laws and regulations

• Assess whether management and the IS function have considered the relevant external requirements

• Review internal IS department documents that address adherence to applicable laws

• Determine adherence to established procedures


1.3.1 ISACA Code of Professional Ethics

The Association’s Code of Professional Ethics provides guidance for the professional and personal conduct of members of ISACA and/or certification holders.


1.3.2 ISACA IS Audit and Assurance Standards Framework

Framework for the ISACA IS Auditing Standards:

• Standards www.isaca.org/standards

• Guidelines www.isaca.org/guidelines

• Tools and Techniques


1.3.2 ISACA IS Audit and Assurance Standards Framework (cont.)

Objectives of the ISACA IS Audit and Assurance 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

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

S13 - Using the Work of Other Experts

S14 - Audit Evidence

S15 - IT Controls

S16 - E-commerce


1.3.2 ISACA IT Audit and Assurance Standards Framework (cont.)

• Purpose, responsibility, authority and accountability

• Approval

S1 - Audit Charter

• Professional independence• Organizational independence

S2 -Independ

ence



• Code of Professional Ethics• Due professional care

S3 -Professional Ethics and Standards

• Skills and knowledge• Continuing professional educationS4 -Competence



• Plan IS audit coverage• Develop and document a risk-based audit

approach• Develop and document an audit plan• Develop an audit program and

procedures

S5 - Planning

• Supervision• Evidence• Documentation

S6 -Performance

of Audit Work



•Identify the organization, intended recipients and any restrictions•State the scope, objectives, coverage and nature of audit work performed•State the findings, conclusions and recommendations and limitations•Justify the results reports•Be signed, dated and distributed according to the audit charter

S7 Reporting



• Review previous conclusions and recommendations

• Review previous relevant findings• Determine whether appropriate

actions have been taken by management in a timely manner

S8 - Follow-up Activities



• Consider the risk of irregularities and illegal acts

• Maintain an attitude of professional skepticism

• Obtain an understanding of the organization and its environment

• Consider unusual or unexpected relationships

• Test the appropriateness of internal control

• Assess any misstatement

S9 -Irregularities and Illegal Acts



•Obtain written representations from management•Have knowledge of any allegations of irregularities or illegal acts•Communicate material irregularities or illegal acts•Consider appropriate action in case of inability to continue performing the audit•Document irregularity- or illegal act-related communications, planning, results, evaluations and conclusions

S9 -Irregularities and Illegal Acts

(continued)



•Review and assess the IS function’s alignment with the organization’s mission, vision, values, objectives and strategies•Review the IS function’s statement about the performance and assess its achievement•Review and assess the effectiveness of IS resource and performance management processes

S10 - IT Governance



•Review and assess compliance with legal, environmental and information quality, and fiduciary and security requirements•Use a risk-based approach to evaluate the IS function•Review and assess the organization’s control environment•Review and assess the risks that may adversely affect the IS environment

S10 - IT Governance

(continued)



• Planning• Use a risk assessment technique in

developing the overall IS audit plan• Identify and assess relevant risks in

planning individual reviews

S11 - Use of Risk Assessment in

Audit



• The IS auditor should consider audit materiality and its relationship to audit risk

• The IS auditor should consider potential weakness or absence of controls when planning for an audit

• The IS auditor should consider the cumulative effect of minor control deficiencies or weaknesses

• The IS audit report should disclose ineffective controls or absence of controls

S12 – Audit Materiality



•The IS auditor should consider using the work of other experts•The IS auditor should be satisfied with the qualifications, competencies, etc., of other experts•The IS auditor should assess, review and evaluate the work of other experts•The IS auditor should determine if the work of other experts is adequate and complete•The IS auditor should apply additional test procedures to gain sufficient and appropriate audit evidence•The IS auditor should provide appropriate audit opinion

S13 - Using the Work of Other

Experts



• Includes procedures performed by the auditor and results of those procedures

• Includes source documents, records and corroborating information

• Includes findings and results of the audit work

• Demonstrates that the work was performed and complies with applicable laws, regulations and policies

S14 -Audit Evidence



• The IS auditor should evaluate and monitor IT controls that are an integral part of the internal control environment of the organization.

S15 - IT Controls

• The IS Auditor should evaluate applicable controls and assess risk when reviewing e-commerce environments to ensure that e-commerce transactions are properly controlled.

S16 - E-commerce


1.3.3 ISACA IT Audit and Assurance Guidelines

G1 Using the Work of Other Auditors, effective 1 March 2008

G2 Audit Evidence Requirement, effective 1 May 2008

G3 Use of Computer Assisted Audit Techniques (CAATs), effective 1 March 2008

G4 Outsourcing of IS Activities to Other Organizations, effective 1 May 2008

G5 Audit Charter, effective 1 February 2008

G6 Materiality Concepts for Auditing Information Systems, effective 1 May 2008

G7 Due Professional Care, effective 1 March 2008

G8 Audit Documentation, effective 1 March 2008


1.3.3 ISACA IS Auditing Guidelines (cont.)

G9 Audit Considerations for Irregularities, effective 1 September 2008

G10 Audit Sampling, effective 1 August 2008

G11 Effect of Pervasive IS Controls, effective 1 August 2008

G12 Organizational Relationship and Independence, effective 1 August 2008

G13 Use of Risk Assessment in Audit Planning, effective 1 August 2008

G14 Application Systems Review, effective 1 December 2008Withdrawn 14 Jan. 2013—See Generic Applications Audit/Assurance Program

G15 Audit Planning, effective 1 May 2010

G16 Effect of Third Parties on an Organization’s IT Controls, effective 1 March 2009See Outsourced IT Environments Audit/Assurance Program

G17 Effect of Non-audit Role on the IS Auditor’s Independence, effective 1 May 2010



G18 IT Governance, effective 1 July 2002 Withdrawn 14 Jan. 2013

G19 Irregularities and Illegal ActsWithdrawn 1 September 2008

G20 Reporting, effective 16 September 2010

G21Enterprise Resource Planning (ERP)Systems Review, effective 16 September 2010 Withdrawn 14 Jan. 2013—See Security, Audit and Control Features SAP ERP, 3rd Edition Audit Programs and ICQs

G22 Business-to-consumer (B2C) E-commerce Review, effective 1 December 2008 Withdrawn 14 Jan. 2013—See E-commerce and PKI Audit/Assurance Program

G23System Development Life Cycle (SDLC) Review, effective 1 August 2003 Withdrawn 14 Jan. 2013—See Systems Development and Project Management Audit/Assurance Program

G24 Internet Banking, effective 1 August 2003 Withdrawn 14 Jan. 2013



G25 Review of Virtual Private Networks, effective 1 July 2004 Withdrawn 14 Jan. 2013—See VPN Security Audit/Assurance Program

G26 Business Process Reengineering (BPR) Project Reviews, effective 1 July 2004 Withdrawn 14 Jan. 2013

G27 Mobile Computing, effective 1 September 2004 Withdrawn 14 Jan. 2013See Mobile Computing Security Audit/Assurance Program

G28 Computer Forensics, effective 1 September 2004 Withdrawn 14 Jan. 2013

G29 Postimplementation Review, effective 1 January 2005 Withdrawn 14 Jan. 2013—See Systems Development and Project Management Audit/Assurance Program

G30 Competence, effective 1 June 2005

G31 Privacy, effective 1 June 2005 Withdrawn 14 Jan. 2013—See PII Audit/Assurance Program



G32Business Continuity Plan Review From IT Perspective, effective 1 September 2005 Withdrawn 14 Jan. 2013—See Business Continuity Management Audit/Assurance Program

G33 General Considerations on the Use of the Internet, effective 1 March 2006 Withdrawn 14 Jan. 2013—See E-commerce and PKI Audit/Assurance Program

G34 Responsibility, Authority and Accountability, effective 1 March 2006

G35 Follow-up Activities, effective 1 March 2006

G36 Biometric Controls, effective 1 February 2007 Withdrawn 14 Jan. 2013—See Biometrics Audit/Assurance Program

G37 Configuration Management, effective 1 November 2007

G38 Access Control, effective 1 February 2008 Withdrawn 14 Jan. 2013—See Identity Management Audit/Assurance Program



G39 IT Organizations, effective 1 May 2008 Withdrawn 14 Jan. 2013

G40 Review of Security Management Practices, effective 1 December 2008 Withdrawn 14 Jan. 2013—See See Security Incident Management Audit/Assurance Program

G41 Return on Security Investment (ROSI), effective 1 May 2010 Withdrawn 14 Jan. 2013

G42 Continuous Assurance, effective 1 May 2010


1.3.4 ISACA IS Audit and Assurance Tools and

Techniques

• Guidance and examples of possible processes an IS auditor might follow in an audit engagement.

• IS auditors should apply their own professional judgment to the specific circumstances.


1.3.5 Relationship Among Standards, Guidelines and Tools

and TechniquesStandards • Must be followed by IS auditors

Guidelines • Provide assistance on how to implement the

standards

Tools and Techniques • Provide examples for implementing the standards


1.3.6 Information TechnologyAssurance Framework (ITAF™)

Section 1000 – General Standards

Section 1200 – Performance Standards

Section 1400 – Reporting Standards

Section 2000 – General Guidelines

Section 2200 – Performance Guidelines

Section 2400– Reporting Guidelines

Section 3000 – Tools and Techniques


1.4 Risk Analysis (cont.)

From the IS auditor’s perspective, risk analysis serves more than one purpose:• It assists the IS auditor in identifying risks and threats

to an IT environment and IS system—risks and threats that would need to be addressed by management—and in identifying system specific internal controls. Depending on the level of risk, this assists the IS auditor in selecting certain areas to examine.



• It helps the IS auditor in his/her evaluation of controls in audit planning.

• It assists the IS auditor in determining audit objectives.

• It supports risk-based audit decision making.

• Part of audit planning

• Helps identify risks and vulnerabilities

• The IS auditor can determine the controls needed to mitigate those risks



IS auditors must be able to:• Be able to identify and differentiate risk types and the

controls used to mitigate these risks• Have knowledge of common business risks, related

technology risks and relevant controls• Be able to evaluate the risk assessment and management

techniques used by business managers, and to make assessments of risk to help focus and plan audit work

• Have an understand that risk exists within the audit process



In analyzing the business risks arising from the use of IT, it is important for the IS auditor to have a clear understanding of:• The purpose and nature of business, the environment in which the

business operates and related business risks

• The dependence on technology and related dependencies that process and deliver business information

• The business risks of using IT and related dependencies and how they impact the achievement of the business goals and objectives

• A good overview of the business processes and the impact of IT and related risks on the business process objectives




1.5 Internal Controls

Policies, procedures, practices and organizational

structures implemented to reduce risks• Classification of internal controls– Preventive controls

– Detective controls

– Corrective controls


1.5 Internal Controls (cont.)


1.5 Internal Controls (cont.)

Internal control system• Internal accounting controls

• Operational controls

• Administrative controls


1.5.1 IS Control Objectives

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.


1.5.1 IS Control Objectives (cont.)

• Safeguarding assets

• Ensuring the integrity of general operating system environments

• Ensuring the integrity of sensitive and critical application system environments through:– Authorization of the input

– Validation of the input

– Accuracy and completeness of processing of transactions

– All transactions are recorded accurately and entered into the system for the proper period

– Reliability of overall information processing activities

– Accuracy, completeness and security of the output

– Database integrity


1.5.1 IS Control Objectives (cont.)

• Ensuring appropriate identification and authentication of users of IS resources

• Ensuring the efficiency and effectiveness of operations

• Complying with requirements, policies and procedures, and applicable laws

• Developing business continuity and disaster recovery plans

• Developing an incident response plan

• Implementing effective change management procedures


1.5.2 COBIT 5

Governance of Enterprise IT

COBIT 5

IT Governance

COBIT4.0/4.1

Management

COBIT3

Control

COBIT2

An business framework from ISACA, at www.isaca.org/cobit

Audit

COBIT1

2005/720001998

Evo

lutio

n of

sco

pe

1996 2012

Val IT 2.0(2008)

Risk IT(2009)

61© 2012 ISACA® All rights reserved.


1.5.2 COBIT 5 (cont.)

The five COBIT 5 principles are:1. Meeting Stakeholder Needs2. Covering the Enterprise End-to-end3. Applying a Single Integrated Framework 4. Enabling a Holistic Approach5. Separating Governance From Management

© Copyright 2013 ISACA. All rights reserved.

Meeting Stakeholder Needs

• Stakeholder needs have to be transformed into an enterprise’s practical strategy.

• The COBIT 5 goals cascade translates stakeholder needs into specific, practical and customised goals within the context of the enterprise, IT-related goals and enabler goals.

63Source: COBIT® 5, figure 4. © 2012 ISACA® All rights reserved.


Covering the Enterprise End-to-end

64

Key components of a governance system

Source: COBIT® 5, figure 9. © 2012 ISACA® All rights reserved.

Source: COBIT® 5, figure 8. © 2012 ISACA® All rights reserved.


Applying a Single, Integrated Framework

There are many IT-related standards and best practices, each providing guidance on a subset of IT activities. COBIT 5 aligns with other relevant standards and frameworks at a high level, and thus can serve as the overarching framework for governance and management of enterprise IT.


Enabling a Holistic ApproachCOBIT 5 Enabler Dimensions:• All enablers have a set of common dimensions. This set of common

dimensions:– Provides a common, simple and structured way to deal with enablers– Allows an entity to manage its complex interactions – Facilitates successful outcomes of the enablers

66Source: COBIT® 5, figure 13. © 2012 ISACA® All rights reserved.


Separating Governance From Management

• Governance ensures that stakeholders needs, conditions and options are evaluated to determine balanced, agreed-on enterprise objectives to be achieved; setting direction through prioritisation and decision making; and monitoring performance and compliance against agreed-on direction and objectives (EDM).

• Management plans, builds, runs and monitors activities in alignment with the direction set by the governance body to achieve the enterprise objectives (PBRM).


Separating Governance From Management (cont.)

COBIT 5 is not prescriptive, but it advocates that organisations implement governance and management processes such that the key areas are covered, as shown.

68 Source: COBIT® 5, figure 15. © 2012 ISACA® All rights reserved.


1.5.3 General Controls

Apply to all areas of an organization and include policies and practices established by management to provide reasonable assurance that specific objectives will be achieved.

• Internal accounting controls directed at accounting operations– Operational controls concerned with the day-to-day

operations


1.5.3 General Controls (cont.)

– Administrative controls concerned with operational efficiency and adherence to management policies

– Organizational logical security policies and procedures

– Overall policies for the design and use of documents and records

– Procedures and features to ensure authorized access to assets

– Physical security policies for all data centers


1.5.4 IS Controls

• Strategy and direction of the IT function

• General organization and management of the IT function

• Access to IT resources, including data and programs

• Systems development methodologies and change control

• Operations procedures

• Systems programming and technical support functions


1.5.4 IS Controls (cont.)

• Quality assurance procedures

• Physical access controls

• Business continuity/disaster recovery planning

• Networks and communications

• Database administration

• Protection and detective mechanisms against internal and external attacks


1.6 Performing an IS Audit

Definition of auditing Systematic process by which a competent, independent person objectively obtains and evaluates evidence regarding assertions about an economic entity or event for the purpose of forming an opinion about and reporting on the degree to which the assertion conforms to an identified set of standards.

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


1.6.1 Classification of Audits

• Compliance audits

• Financial audits

• Operational audits

• Integrated audits

• Administrative audits

• IS audits

• Specialized audits

• Forensic audits


1.6.2 Audit Programs

• Based on the scope and objective of the particular assignment

• IS auditor’s perspectives:

– Security (confidentiality, integrity and availability)

– Quality (effectiveness, efficiency)

– Fiduciary (compliance, reliability)

– Service and capacity


1.6.2 Audit Programs (cont.)

General audit procedures• Understanding of the audit area/subject• Risk assessment and general audit plan• Detailed audit planning• Preliminary review of audit area/subject• Evaluating audit area/subject• Verifying and evaluating controls• Compliance testing • Substantive testing• Reporting (communicating results)• Follow-up


1.6.2 Audit Programs (cont.)

Procedures for Testing and Evaluating IS Controls• Use of generalized audit software to survey the contents of data files

• Use of specialized software to assess the contents of operating system parameter files

• Flow-charting techniques for documenting automated applications and business process

• Use of audit reports available in operation systems

• Documentation review

• Observation

• Walkthroughs

• Reperformance of controls


1.6.3 Audit Methodology

A set of documented audit procedures designed to achieve planned audit objectives

• Composed of: – Statement of scope

– Statement of audit objectives

– Statement of audit programs

• Set up and approved by the audit management

• Communicated to all audit staff


1.6.3 Audit Methodology (cont.)

Audit phases• Audit subject • Audit objective• Audit scope• Preaudit planning• Audit procedures and steps for data gathering• Procedures for evaluating the test or review results• Procedures for communication with management• Audit report preparation


Audit Phases Description

Identify Audit subject Identify the area to be audited.

Define the audit objective Identify the purpose of the audit.

For example, an objective might be to determine whether program source code changes occur in a well-defined andcontrolled environment.

Define the audit scope Identify the specific systems, function or unit of the organization to be included in the review.

For example, in the previous program changes example, the scope statement might limit the review to a single application system or to a limited period of time.

Perform the pre-audit planning

• Identify technical skills and resources• needed.• Identify the sources of information for test or review such as

functional flow charts, policies, standards, procedures and prior audit work papers.• Identify locations or facilities to be audited.




Audit Phase - Continued Description

Audit procedures and steps for data gathering

• Identify and select the audit approach to verify and test the controls.• Identify a list of individuals to interview.• Identify and obtain departmental policies,• standards and guidelines for review.• Develop audit tools and methodology to test• and verify control.

Procedures for evaluating the test or review results

Organization-specific

Procedures for communicationwith management

Organization-specific

Audit report preparation • Identify follow-up review procedures.• Identify procedures to evaluate/test• operational efficiency and effectiveness.• Identify procedures to test controls.• Review and evaluate the soundness of documents,

policies and procedures.



What is documented in work papers (WPs)?• Audit plans

• Audit programs

• Audit activities

• Audit tests

• Audit findings and incidents


1.6.4 Fraud Detection• Management’s responsibility

• Benefits of a well-designed internal control system– Deterring fraud at the first instance

– Detecting fraud in a timely manner

• Fraud detection and disclosure

• Auditor’s role in fraud prevention and detection


1.6.5 Risk-based Auditing


1.6.6 Audit Risk and Materiality

Audit risk categories

• Inherent risk

• Control risk

• Detection risk

• Overall audit risk


1.6.7 Risk Assessment and Treatment

Assessing security 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


1.6.7 Risk Assessment and Treatment (cont.)

Treating security risks

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

• Possible risk responses include:

-Risk mitigation

-Risk acceptance

-Risk avoidance

-Risk transfer/sharing


1.6.8 Risk Assessment Techniques

• Enables management to effectively allocate limited audit resources

• Ensures that relevant information has been obtained from all levels of management

• Establishes a basis for effectively managing the audit department

• Provides a summary of how the individual audit subject is related to the overall organization as well as to the business plan


1.6.9 Audit ObjectivesSpecific goals of the audit• Compliance with legal and regulatory

requirements• Confidentiality• Integrity• Reliability • Availability


1.6.10 Compliance vs. Substantive Testing

• Compliance test– Determines whether controls are in compliance with

management policies and procedures

• Substantive test– Tests the integrity of actual processing

• Correlation between the level of internal controls and substantive testing required

• Relationship between compliance and substantive tests


1.6.10 Compliance vs. Substantive Testing (cont.)


1.6.11 Evidence

It is a requirement that the auditor’s conclusions be based on sufficient, competent evidence:• Independence of the provider of the evidence• Qualification of the individual providing the

information or evidence• Objectivity of the evidence• Timing of the evidence


1.6.11 Evidence (cont.)

Techniques for gathering evidence:• Review IS organization structures• Review IS policies and procedures • Review IS standards• Review IS documentation • Interview appropriate personnel• Observe processes and employee performance


1.6.12 Interviewing and Observing Personnel in Performance of Their Duties

• Actual functions

• Actual processes/procedures

• Security awareness

• Reporting relationships

• Observation drawbacks


1.6.13 Sampling

General approaches to audit sampling:

• Statistical sampling

• Non-statistical sampling


1.6.13 Sampling (cont.)

• Attribute sampling– Stop-or-go sampling

– Discovery sampling

• Variable sampling– Stratified mean per unit

– Unstratified mean per unit

– Difference estimation



Statistical sampling terms:

• Confident coefficient

• Level of risk

• Precision

• Expected error rate



Statistical sampling terms (continued):

• Sample mean

• Sample standard deviation

• Tolerable error rate

• Population standard deviation



Key steps in choosing a sample:• Determine the objectives of the test

• Define the population to be sampled

• Determine the sampling method, such as attribute versus variable sampling

• Calculate the sample size

• Select the sample

• Evaluating the sample from an audit perspective


1.6.14 Using the Services of Other Auditors and Experts

Considerations when using services of other auditors and experts:

• Restrictions on outsourcing of audit/security services provided by laws and regulations

• Audit charter or contractual stipulations

• Impact on overall and specific IS audit objectives

• Impact on IS audit risk and professional liability

• Independence and objectivity of other auditors and experts


1.6.14 Using the Services of Other Auditors and Experts (cont.)

Considerations when using services of other auditors and experts:• Professional competence, qualifications and experience

• Scope of work proposed to be outsourced and approach

• Supervisory and audit management controls

• Method and modalities of communication of results of audit work

• Compliance with legal and regulatory stipulations

• Compliance with applicable professional standards


1.6.15 Computer-assisted Audit Techniques

• CAATs enable IS auditors to gather information independently

• CAATs include:– Generalized audit software (GAS)

– Utility software

– Debugging and scanning software

– Test data

– Application software tracing and mapping

– Expert systems


1.6.15 Computer-assisted Audit Techniques (cont.)

• Features of generalized audit software (GAS):– Mathematical computations– Stratification– Statistical analysis– Sequence checking

• Functions supported by GAS:– File access– File reorganization– Data selection– Statistical functions– Arithmetical functions



Items to consider before utilizing CAATs:• Ease of use for existing and future audit staff

• Training requirements

• Complexity of coding and maintenance

• Flexibility of uses

• Installation requirements

• Processing efficiencies

• Confidentiality of data being processed



Documentation that should be retained:• Online reports• Commented program listings• Flowcharts• Sample reports• Record and file layouts• Field definitions• Operating instructions• Description of applicable source documents



CAATs as a continuous online audit approach:

• Improves audit efficiency

• IS auditors must: – develop audit techniques for use with advanced

computerized systems

– be involved in the creation of advanced systems

– make greater use of automated tools


1.6.16 Evaluation of Audit Strengths and Weaknesses

• Assess evidence

• Evaluate overall control structure

• Evaluate control procedures

• Assess control strengths and weaknesses


1.6.16 Evaluation of Audit Strengths and Weaknesses (cont.)

Judging materiality of findings

• Materiality is a key issue

• Assessment requires judgment of the potential effect of the finding if corrective action is not taken


1.6.17 Communicating Audit Results

Exit interview– Correct facts

– Realistic recommendations

– Implementation dates for agreed recommendations

Presentation techniques– Executive summary

– Visual presentation


1.6.17 Communicating Audit Results (cont.)

Audit report structure and contents

• An introduction to the report

• Audit findings presented in separate sections

• The IS auditor’s overall conclusion and opinion

• The IS auditor’s reservations with respect to the audit

• Detailed audit findings and recommendations

• A variety of findings


1.6.18 Management Implementation of Recommendations

• Auditing is an ongoing process

• Timing of follow-up


1.6.19 Audit Documentation

Audit documentation includes:• Planning and preparation of the audit scope and

objectives

• Description on the scoped audit area

• Audit program

• Audit steps performed and evidence gathered

• Other experts used

• Audit findings, conclusions and recommendations


1.7 Control Self-Assessment

• A management technique

• A methodology

• In practice, a series of tools

• Can be implemented by various methods


1.7 Control Self-Assessment (cont.)


1.7.1 Objectives of CSA

• Leverage the internal audit function by shifting some control monitoring responsibilities to functional areas

• Enhancement of audit responsibilities, not a replacement

• Educate management about control design and monitoring

• Empowerment of workers to assess the control environment


1.7.2 Benefits of CSA

• Early detection of risks• More effective and improved internal controls• Increased employee awareness of organizational

objectives• Highly motivated employees• Improved audit rating process• Reduction in control cost• Assurance provided to stakeholders and customers


1.7.3 Disadvantages of CSA

• Could be mistaken as an audit function replacement

• May be regarded as an additional workload

• Failure to act on improvement suggestions could damage employee morale

• Lack of motivation may limit effectiveness in the detection of weak controls


1.7.4 Auditor Role in CSA

• Internal control professionals

• Assessment facilitators


1.7.5 Technology Drivers for CSA

• Combination of hardware and software

• Use of an electronic meeting system

• Computer-supported decision aids

• Group decision making is an essential component


1.7.6 Traditional vs. CSA Approach

• Traditional Approach– Assigns duties/supervises staff– Policy/rule driven– Limited employee participation– Narrow stakeholder focus

• CSA Approach– Empowered/accountable employees– Continuous improvement/learning curve– Extensive employee participation and training– Broad stakeholder focus


1.8.1 Integrated Auditing

Process whereby appropriate audit disciplines are combined to assess key internal controls over an operation, process or entity.

• Focuses on risk to the organization (for an internal auditor)

• Focuses on the risk of providing an incorrect or misleading audit opinion (for an external auditor)


1.8.1 Integrated Auditing (cont.)

Process involves:• Identification of risks faced by

organization and of relevant key controls

• Review and understanding of the design of key controls

• Testing that key controls are supported by the IT system

• Testing that management controls operate effectively

• A combined report or opinion on control risks, design and weaknesses


1.8.2 Continuous Auditing

• Distinctive character – Short time lapse between the facts to be audited and

the collection of evidence and audit reporting

• Drivers– Better monitoring of financial issues– Allows real-time transactions to benefit from real-time

monitoring– Prevents financial fiascoes and audit scandals– Uses software to determine proper financial controls


1.8.2 Continuous Auditing (cont.)

Continuous auditing vs. continuous monitoring

• Continuous monitoring – Provided by IS management tools

– Based on automated procedures to meet fiduciary responsibilities

• Continuous auditing– Audit-driven

– Completed using automated audit procedures



Application of continuous auditing due to:

• New information technology developments

• Increased processing capabilities

• Standards

• Artificial intelligence tools



Prerequisites:

• A high degree of automation• An automated and reliable information-producing process• Alarm triggers to report control failures• Implementation of automated audit tools• Quickly informing IS auditors of anomalies/errors• Timely issuance of automated audit reports• Technically proficient IS auditors• Availability of reliable sources of evidence• Adherence to materiality guidelines• Change of IS auditors’ mindset• Evaluation of cost factors



IT techniques in a continuous auditing environment: • Transaction logging• Query tools• Statistics and data analysis (CAAT)• Database management systems (DBMS)• Data warehouses, data marts and data mining• Intelligent agents• Embedded audit modules (EAM)• Neural network technology• Standards such as Extensible Business Reporting Language



• Advantages– Instant capture of internal control problems

– Reduction of intrinsic audit inefficiencies

• Disadvantages– Difficulty in implementation

– High cost

– Elimination of auditors’ personal judgment and evaluation


1.9.1 Case Study A Scenario

The IS auditor has been asked to perform preliminary work that will assess the readiness of the organization for a review to measure compliance with new regulatory requirements. These requirements are designed to ensure that management is taking an active role in setting up and maintaining a well-controlled environment and, accordingly, will assess management’s review and testing of the general IT control environment.

Areas to be assessed include logical and physical security, change management, production control and network management, IT governance, and end-user computing. The IS auditor has been given six months to perform this preliminary work, so sufficient time should be available. It should be noted that in previous years, repeated problems have been identified in the areas of logical security and change management, so these areas will most likely require some degree of remediation.


1.9.1 Case Study A Scenario (continued)

Logical security deficiencies noted included the sharing of administrator accounts and failure to enforce adequate controls over passwords. Change management deficiencies included improper segregation of incompatible duties and failure to document all changes. Additionally, the process for deploying operating system updates to servers was found to be only partially effective.

In anticipation of the work to be performed by the IS auditor, the chief information officer (CIO) requested direct reports to develop narratives and process flows describing the major activities for which IT is responsible. These were completed, approved by the various process owners and the CIO, and then forwarded to the IS auditor for examination.


Case Study A Question

1. What should the IS auditor do FIRST?A. Perform an IT risk assessment.

B. Perform a survey audit of logical access controls.

C. Revise the audit plan to focus on risk-based auditing.

D. Begin testing controls that the IS auditor feels are most critical.

Correct Ans: A


Case Study A Question

2. When testing program change management, how should the sample be selected?

A. Change management documents should be selected at random and examined for appropriateness.

B. Changes to production code should be sampled and traced to appropriate authorizing documentation.

C. Change management documents should be selected based on system criticality and examined for appropriateness.

D. Changes to production code should be sampled and traced back to system-produced logs indicating the date and time of the change.

Correct Ans: B


1.9.2 Case Study B Scenario

An IS auditor is planning to review the security of a financial application for a large company with several locations worldwide. The application system is made up of a web interface, a business logic layer and a database layer. The application is accessed locally through a LAN and remotely through the Internet via a virtual private network (VPN) connection.


Case Study B Question

1. The MOST appropriate type of CAATs tool the auditor should use to test security configuration settings for the entire application system is:

A. generalized audit software.

B. test data.

C. utility software.

D. expert system.

Correct Ans: C



2. Given that the application is accessed through the Internet, how should the auditor determine

whether to perform a detailed review of the firewall rules and virtual private network (VPN) configuration settings?

A. Documented risk analysis

B. Availability of technical expertise

C. Approach used in previous audit

D. IS auditing guidelines and best practices

Correct Ans: A



3. During the review, if the auditor detects that the transaction authorization control objective cannot be met due to a lack of clearly defined roles and privileges in the application, the auditor should FIRST:

A. review the authorization on a sample of transactions.

B. immediately report this finding to upper management.

C. request that auditee management review the appropriateness of access rights for all users.

D. use a generalized audit software to check the integrity of the database.

Correct Ans: A


1.9.3 Case Study C Scenario

An IS auditor has been appointed to carry out IS audits in an entity for a period of 2 years. After accepting the appointment, the IS auditor noted that:

– The entity has an audit charter that detailed, among other things, the scope and responsibilities of the IS audit function and specifies the audit committee as the overseeing body for audit activity.

– The entity is planning a major increase in IT investment, mainly on account of implementation of a new ERP application, integrating business processes across units dispersed geographically. The ERP implementation is expected to become operational within the next 90 days. The servers supporting the business applications are hosted offsite by a third-party service provider.


1.9.3 Case Study C Scenario (continued)

– The entity has a new incumbent as chief information security officer (CISO), who reports to the chief financial officer (CFO).

– The entity is subject to regulatory compliance requirements that require its management to certify the effectiveness of the internal control system as it relates to financial reporting. The entity has been recording growth at double the industry average consistently over the last two years. However, the entity has seen increased employee turnover as well.


1. The FIRST priority of the IS auditor in year 1 should be to study the:

A. previous IS audit reports and plan the audit schedule.

B. audit charter and plan the audit schedule.

C. impact of the new incumbent as CISO.

D. impact of the implementation of a new ERP on the IT environment and plan the audit schedule.

Correct Ans: D

Case Study C Question


Case Study C Question2. How should the IS auditor evaluate backup and batch

processing within computer operations?A. Plan and carry out an independent review of computer

operations.

B. Rely on the service auditor’s report of the service provider.

C. Study the contract between the entity and the service provider.

D. Compare the service delivery report to the service level agreement.

Correct Ans: D


Practice Question

1-1 Which of the following establishes the overall authority to perform an IS audit?A. The audit scope, with goals and objectivesB. A request from management to perform an

auditC. The approved audit charterD. The approved audit schedule

• Correct Ans: C


1-2 In performing a risk-based audit, which risk assessment is completed initially by the IS auditor?

A. Detection risk assessment

B. Control risk assessment

C. Inherent risk assessment

D. Fraud risk assessment

Practice Question


1-3 While developing a risk-based audit program, on which of the following would the IS auditor MOST likely focus?

A. Business processes

B. Critical IT applications

C. Operational controls

D. Business strategies

Practice Question


Practice Question

1-4 Which of the following types of audit risk assumes an absence of compensating controls in the area being reviewed?

A. Control risk

B. Detection risk

C. Inherent risk

D. Sampling risk


Practice Question

1-5 An IS auditor performing a review of an application’s controls finds a weakness in system software that could materially impact the application. The IS auditor should:

A. disregard these control weaknesses, as a system software review is beyond the scope of this review.

B. conduct a detailed system software review and report the control weaknesses.

C. include in the report a statement that the audit was limited to a review of the application’s controls.

D. review the system software controls as relevant and recommend a detailed system software review.


1-6 Which of the following is the MOST important reason why an audit planning process should be reviewed at periodic intervals?

A. To plan for deployment of available audit resources

B. To consider changes to the risk environment

C. To provide inputs for documentation of the audit charter

D. To identify the applicable IS audit standards

Practice Question


Practice Question

1-7 Which of the following is MOST effective for implementing a control self-assessment (CSA) within business units?

A. Informal peer reviews

B. Facilitated workshops

C. Process flow narratives

D. Data flow diagrams


Practice Question

1-8 The FIRST step in planning an audit is to:A. define audit deliverables.

B. finalize the audit scope and audit objectives

C. gain an understanding of the business’s objectives.

D. develop the audit approach or audit strategy.


Practice Question

1-9 The approach an IS auditor should use to plan IS audit coverage should be based on:

A. risk.

B. materiality.

C. professional skepticism.

D. Sufficiency of audit evidence.


Practice Question

1-10 A company performs a daily backup of critical data and software files and stores the backup tapes at

an offsite location. The backup tapes are used to restore the files in case of a disruption. This is a:

A. preventive control.

B. management control.

C. corrective control.

D. detective control.


Practice 11

1, In a risk-based audit approach, the IS auditor must consider the inherent risk as well as considering:

A. how to eliminate the risk through the application of controls. B. the balance of loss potential vs. the cost to implement controls. C. whether the risk is material, regardless of management’s tolerance for risk. D. whether the residual risk is higher than the insurance coverage purchased.

• B Determining the correct balance between the loss potential and the cost to implement controls is a very important part of an effective risk mitigation strategy. The best internal control is one where the benefit of implementing the control at least matches the cost. Eliminating risk is very difficult to achieve and often impossible to attain. Hence, the IS auditor should not recommend that risk be eliminated since this is not likely to be cost-effective for the organization. Whether the risk is material is not the correct answer since the risk tolerance of management determines what is material. Insurance coverage is not necessarily the only control to consider for mitigating residual


Practice 1212. Which of the following sampling methods is MOST useful when testing for compliance?

A. Attribute sampling B. Variable sampling C. Stratified mean per unit D. Difference estimation

• A Attribute sampling is the primary sampling method used for compliance testing. Attribute sampling is a sampling model that is used to estimate the rate of occurrence of a specific quality (attribute) in a population and is used in compliance testing to confirm whether the quality exists. The other choices are used in substantive testing, which involves testing of details or quantity.


Practice 13

13. Which of the following is the MOST critical step to perform when planning an IS audit?

A. Review findings from prior audits. B. Develop plans to conduct a physical security review of the data center facility. C. Review IS security policies and procedures. D. Perform a risk assessment.

D Of all the steps listed, performing a risk assessment is the most critical. Risk assessment is required by ISACA IT Audit and Assurance Standard S11 (Use of Risk Assessment in Audit Planning). In addition to the standards requirement, if a risk assessment is not performed, then high-risk areas of the auditee systems or operations may not be identified for evaluation. Detection risk (the risk that a material error is not detected by the IS auditor) is increased for the IS auditor if a risk assessment is not conducted. The review of findings from prior audits is a necessary part of the engagement, but this step is not as critical as conducting a risk assessment. A physical security review of the data center facility is important, but not as critical as performing a risk assessment. Reviewing IS security policies and procedures would normally be conducted during fieldwork, not planning.


Practice 1414. While planning an audit, an assessment of risk should be made to provide: • A. reasonable assurance that the audit will cover material items. • B. definite assurance that material items will be covered during the audit work. • C. reasonable assurance that all items will be covered by the audit. • D. sufficient assurance that all items will be covered during the audit work.

A The ISACA IS Auditing Guideline G15 on planning the IS audit states, “An assessment of risk should be made to provide reasonable assurance that material items will be adequately covered during the audit work. This assessment should identify areas with a relatively high risk of the existence of material problems.” Definite assurance that material items will be covered during the audit work is an impractical proposition. Reasonable assurance that all items will be covered during the audit work is not the correct answer, as material items need to be covered, not all items.


Practice 1515. After reviewing the disaster recovery plan (DRP) of an organization, an IS auditor requests a meeting with company management to discuss the findings. Which of the following BEST describes the main goal of this meeting?

A. Obtaining management approval of the corrective actions B. Confirming factual accuracy of the findings C. Assisting management in the implementation of corrective actions D. Clarifying the scope and limitations of the audit

B The goal of the meeting is to confirm the factual accuracy of the audit findings and present an opportunity for management to agree on corrective action. Management approval of the corrective actions is not required since this is not the role of the auditor. Implementation of corrective actions should be done after the factual accuracy of findings has been established, but the work of implementing corrective action is not typically assigned to the IS auditor since this would impair the auditor’s independence. Clarifying the scope and limitations of the audit should be done during the entrance meeting, not during the exit meeting.


Conclusion

• Chapter 1 Quick Reference Review– Page 29 of CISA Review Manual 2013

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