AN ASSESSMENT OF INTERNAL CONTROL SYSTEM IN A COMPUTERIZED ACCOUNTING ENVIRONMENT

Description

THIS PROJECT WORK IS ON AN ASSESSMENT OF INTERNAL CONTROL SYSTEM IN A COMPUTERIZED ACCOUNTING ENVIRONMENT.

CHAPTER ONE

INTRODUCTION

1.1Background of the study

According to Fadzil et al (2005), the technology revolution in accounting and auditing began in the summer of 1954 with the first operational business computer. General electric is attributed with the first operational electric accounting system, a UNIVAC computer, in the summer of 1954.

Hunton and Wright (2009) concur that Information Technology Auditing (IT Auditing) began as Electronic Data Process (EDP) auditing and developed largely as a result of the rise in technology in accounting systems, the need for IT control, and the impact of computers on the ability to perform attestation services. It is believed the first use of a computerized accounting system was at General Electric in 1954. At this time only mainframe computers were used and a few people had the skills and abilities to program computers. This began to change in the mid-1960s with the introduction of new, smaller and less expensive machines. This increased the use of computers in businesses and with it came the need for auditors to become familiar with EDP concepts in business.

Jones and Young (2006) point out that EDP auditors formed the Electronic Data Processing Auditors Association (EDPAA). The goal of the association was to produce guidelines, procedures and standards for EDP audits. In 2007, the first edition of control Objectives was published. This publication is now known as Control Objectives for information and related Technology (CobiT) is the set of generally accepted IT control objectives for IT Auditors. In 2004, EDPAA changed its name to Information Systems Audit and Control Association (ISACA). The period from the late 1960s through today has seen rapid changes in technology from the microcomputer and networking to the internet and with these changes came some major events that change IT auditing forever.

According to Griffiths (2006), the accounting industry is responsible for recording and reporting financial information for business. Accounting functions generally fall in to one of two accounting categories: management and financial. Where management accounting is responsible for recording and reporting internal financial information for managers for business decisions, financial accounting reviews company’s information released to external business stakeholders.

Jackson (2005) suggested that taking comprehensive measures for protecting financial information often helps companies pass external audits with positive audit opinions. External audits may be used by banks, lenders or investors deciding to invest capital into the company.

Companies may also need to present clean audit report to government agencies regarding their financial and accounting practices. The ability to present a strong internal control process and audit trails relating to accounting software often helps companies’ limits financial or legal liability.

Lorenzo (2001) mention that, the objective of enterprise risk management audit and control is to provide an integrated, comprehensive assessment of all the risks that an institution is exposed to and an objective and consistent approach to managing them. The size and complexity of the larger institutions make computerized auditing more important while on the other hand; their very size and complexity also make it harder to achieve an enterprise wide view of risk auditing.

Measuring operational risk is especially difficult due to a variety of reasons. Kunkel (2004) also noted that ERP systems implementation at many corporations has led to increased audit related risk due to automated interdependencies among business processes, and integrated relational database. As technological developments continue, auditors may need to expand their technological knowledge and skills in order to perform effectively and efficiently in audit functions.

1.2   The Statement Of The Problem

The audit problems with organization today can be dealt with from two broad perspective i.e. technological problem and historical problems.

This sense of the technical problem has to do with lack of technological know how. Since audit in a computer environment is a modern or contemporary way of audit, it entails a formal or an informal training on how to do this, which so many people (auditors) and their organization lacks, and it also involves extra spending on the purchases, maintenance, etc. of computer and its accessories, which organization try to avoid in their bids to maximize profit.

The historical aspect of it could be referred to as familiarity with the traditional way, which result from continuous practice, hence making it difficult for one to adopt to current or modern way of doing it, so easily.

Furthermore, the size of the organization, like my case study whose area offices here in Benue State is small in size and in member of staff, also determine the use of modern audit (Computer) or the traditional (manual) way of doing it, i.e. if the size is big, computer audit will be embarked on to facilitate the whole audit process, while if it is small in size, the traditional way can be used, since the work load in little.

1.3 Objectives of the study

This research work titled an assessment of internal control system in a computerized accounting environment with particular reference to First bank Nigeria Plc.

The specific objectives of this research work includes the following;

1.  To examine the effect of computerized accounting system on the effective performance of internal control unit in first bank Plc.

2.  To evaluate the extent of application of computerized accounting system in first bank Nigeria Plc.

3.  To examine the role of internal control system in a computerized accounting environment.

4.  To identify the factors militating against effective internal control system in a computerized accounting system. And also proffer possible solutions to the problems identified.

1.4 Research Questions

Based on the objectives above the researcher asked the following questions;

1.  Does computerized accounting system influence the effective performance of internal control unit in first bank Plc?

2.  To what extent does first bank Nigerian plc apply computerized accounting system in internal control unit?

3.  What are the roles of internal control system in a computerized accounting environment?

4.  What are the factors militating against effective internal control system in a computerized accounting system?