Page 445 - Introduction to Business

CHAPTER 12 Financial Reporting 419

On the basis of the audit evidence obtained regarding
the degree of correspondence between assertions and
established criteria, the auditor formulates an audit opin-
ion, which is then communicated to interested parties. In
financial statement audits, this communication occurs in
the audit report that accompanies the financial statements
in the annual report of the audited firm. Exhibit 12.7 (on
p. 420) shows the audit report for DaimlerChrysler Corpora-
tion. The auditor also issues a separate, more detailed report
internally to the audited firm. For operational or internal
control audits, management would typically be the sole
recipient of the auditor’s report detailing the findings and
conclusions of the audit.

Impact of Computerization
The audit process described above applies to both manual
and computer-based systems. With the ever-increasing
sophistication of computer-based accounting systems, audi-
tors have had to significantly modify their audit procedures to
adapt to the changing technology. Computer-based account-
ing systems are quite different from manual systems in many
respects. Although information technology advances have
made it more difficult for the auditor to examine accounting
systems, these advances also provide opportunities for the
auditor to conduct a significantly more effective and efficient
audit than could be performed without them.
NBA star Yao Ming of the Houston Rockets shows off his
Computers can process accounting transactions with
McDonald’s jersey, after being selected as global spokesman
incredible speed, accuracy, and reliability. The computer for the restaurant company. Looking on are Ronald McDonald
will process the one thousandth transaction exactly as it did and NBA Commissioner David Stern.
the first transaction. However, the accuracy and reliability of
computer processing is a function of the accuracy and reliability of the program, or
software, that drives the computer processing. The negative effects of computeri-
zation from an auditing standpoint are
Decreased visibility of transaction processing
Existence of data in computer-readable form only
Diminished audit trail
Extreme consequences of program errors
Inability of the computer to exercise logic
One problem caused by computerization is that the processing of transactions
is no longer easily visible to the auditor. In manual auditing, the auditor can
physically observe the recording of a sales transaction in the sales journal and its
subsequent posting to the ledger. However, the computer’s posting of a transaction
to the appropriate computer files cannot be as readily observed, and the auditor
has to rely on secondary means to observe exactly how the computer processes
transactions. For example, the auditor could examine a trace produced by a special
program that can track the sequence of steps performed by the computer.
A second problem caused by computer processing of accounting transactions is
that the data cannot be viewed without the assistance of the computer. Data mag-
netically stored on a computer disk can only be viewed using software that either
displays it on a screen or sends it to a printer. Again, this method of viewing

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