An Assessment Of Internal Control System In A Computerized Accounting Environment

An Assessment Of Internal Control System In A Computerized Accounting Environment

Chapiter 1

Introduction

1.1 The study’s history

Fadzil et al. (2005) claim that the first operational commercial computer launched the technology revolution in accounting and auditing in the summer of 1954. The first operational electric accounting system, a UNIVAC computer, is credited to General Electric in the summer of 1954.

According to Hunton and Wright (2009), Information Technology Auditing (IT Auditing) started as Electronic Data Process (EDP) auditing and evolved primarily as a result of the development of IT control, the need for increased technology in accounting systems, and the effect of computers on the capacity to provide attestation services. It’s thought that General Electric used a computerized accounting system for the first time in 1954. Only mainframe computers were in use at the time, and only a small number of people were capable of programming them. When new, more affordable, and smaller machines were introduced in the middle of the 1960s, this started to alter. As a result, there has been a surge in the use of computers in businesses, necessitating the education of auditors in EDP concepts.

EDP auditors founded the Electronic Data Processing Auditors Association (EDPAA), according to Jones and Young (2006). The association’s objective was to provide standards, processes, and guidelines for EDP audits. Control Objectives’ first edition was released in 2007. The set of universally agreed IT control objectives for IT auditors is currently known as Control Objectives for information and related Technology (CobiT). Information Systems Audit and Control Association (ISACA) replaced EDPAA as the organization’s name in 2004. Rapid technological advancements—from the microcomputer and networking to the internet—have occurred from the late 1960s to the present. These advancements have also brought about several significant events that have permanently altered IT auditing.

Griffiths (2006) asserts that the accounting sector is in charge of documenting and disseminating financial data for commercial purposes. The two accounting categories that accounting functions often belong to are management and financial. Financial accounting evaluates the information a company releases to external business stakeholders, while management accounting is in charge of documenting and reporting internal financial information to managers for business decisions.

According to Jackson (2005), taking all necessary precautions to safeguard financial data frequently enables businesses to receive favorable audit conclusions following external audits. Banks, lenders, and investors who are determining whether to put money in the company may employ external audits.

Government authorities may also require businesses to provide a clean audit report addressing their financial and accounting procedures. Accounting software audit trails and the ability to demonstrate effective internal controls can assist businesses in limiting their financial or legal liabilities.

According to Lorenzo (2001), the goal of enterprise risk management audit and control is to provide an integrated, thorough assessment of all the risks to which an organization is exposed as well as a consistent, objective method for managing those risks. Larger organizations’ size and complexity increase the importance of computerized auditing, but they also make it more challenging to implement a company-wide approach to risk auditing.

Operational risk measurement is particularly challenging for a number of reasons. Kunkel (2004) further stated that due to automated linkages between business processes and integrated relational databases, the deployment of ERP systems at many firms has increased audit-related risk. In order to conduct audit functions effectively and efficiently as technology advances, auditors may need to increase their technological knowledge and proficiency.

1.2.1 The Problem’s Statement

The audit issues that organizations are currently facing can be addressed from two different, but related, perspectives: technology issues and historical issues.

This perception of a technical issue is caused by a lack of technological expertise. Since auditing in a computer environment is a modern or contemporary method, it necessitates formal or informal training in doing so, which many auditors and their organizations lack. It also necessitates additional spending on the purchase, maintenance, etc. of computers and their accessories, which organizations try to avoid in their efforts to maximize profit.

The historical part of it could be described as familiarity with the conventional manner, which comes through constant practice, making it challenging to quickly adapt the current or new way of doing things.

In addition, the size of the organization—like in my case study, where the area offices in Benue State are small in size and staff—determines whether to conduct an audit using a computer or the traditional (manual) method. If the organization is large, a computer audit will be conducted to streamline the audit process; however, if it is small, the traditional method can be used because the workload is light.

1.3 Study’s objectives

An evaluation of internal control systems in a computerized accounting environment is the focus of this study project, which specifically mentions First Bank Nigeria Plc.

The following are some of the research’s specific goals:

1. To investigate how first bank Plc’s internal control unit performs when using a computerized accounting system.

2. To assess the first bank Nigeria Plc’s use of the computerized accounting system.

3. To investigate the function of internal controls in a computerized accounting environment.

4. To determine the elements that work against a computerized accounting system’s effective internal control system. Moreover, suggest any potential fixes for the issues you’ve noticed.

1.4 Research Prompts

The researcher posed the following queries based on the aforementioned goals;

1. Does First Bank Plc’s internal control unit operate effectively while using a computerized accounting system?

2. How much does the internal control unit of First Bank Nigerian Plc use a computerized accounting system?

3. What functions do internal control systems play in a world of computerized accounting?

4. What are the reasons that work against a computerized accounting system’s internal control system being effective?