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Evaluating an automated processing algorithm requires distinguishing between testing the internal logic of the system (Through) and using digital tools to analyze the outputs or data files (With).
Audit Through the Computer (White-Box Testing)
- Core Focus: Examines the application's internal code, automated controls, and processing logic to ensure the algorithm functions according to specified business and regulatory rules.
- Techniques Used:
- Test Data Method: Feeding dummy transactions (both valid and invalid) through the algorithm to check how exceptions are handled.
- Parallel Simulation: Replicating the client's algorithm logic in an independent auditor-controlled program and comparing execution results against the live system.
- Program Code Review: Analyzing source code lines to detect hidden flaws, unauthorized changes, or logic gaps.
- Primary Objective: Verifies that internal processing controls are robust and that data integrity is maintained dynamically during execution.
Audit With the Computer (Using CAATs)
- Core Focus: Uses software tools (such as SQL, Python, ACL, or IDEA) to perform substantive tests on data processed by the algorithm without necessarily inspecting the underlying source code.
- Techniques Used:
- Data Extraction and Re-performance: Querying large database tables to independently recalculate algorithm-driven outputs, such as interest or allocations.
- Stratification and Sampling: Automatically analyzing 100% of a transaction population for anomalies, outliers, or duplicate entries rather than relying on manual samples.
- Analytical Procedures: Running trend analyses and ratio tests on system-generated master files.
- Primary Objective: Enhances audit efficiency and coverage by leveraging computing power to validate the accuracy and completeness of historical system outputs.
Comparative Overview
| Dimension | Audit Through the Computer | Audit With the Computer (CAATs) |
|---|---|---|
| Primary Target | Program logic, source code, and automated controls | Data files, master records, and transaction outputs |
| Methodology | Test data, parallel simulation, code walkthroughs | Data queries, re-performance, anomaly detection |
| Technical Skill | Requires software engineering and application control knowledge | Requires data analytics and database querying capability |
| Audit Phase | Primarily Tests of Controls | Primarily Substantive Testing and Analytical Procedures |
Audit Under Computerised Information System
This video provides a helpful overview of conducting audits within computerized information systems, covering automated processing controls and verification techniques.
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