 in this presentation we will discuss the effect of information technology on internal controls this is of course a big area and a growing area with regards to businesses internal controls and auditing and first a word from our sponsor well actually these are just items that we picked from the youtube shopping affiliate program but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you these are things that we actually researched purchase and use ourselves uh slippers i usually walk around my home in just my socks but i wanted a high quality pair of slippers that didn't have a heel on them so i can slip them on easily give me a little bit more warmth than just my socks provide and which has a sole on them so i can deal with messes in the home such as spilled liquid or broken glass without getting my socks wet or my feet cut up and the ugg slippers do a great job with that i like the quality of the slippers they feel like they're gonna last a long time they will probably outlast me so i recommend the ugg slippers if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot thinkific dot com where we have many different courses you can purchase one at a time or have a subscription model giving you access to all the courses courses which are well organized have other resources like excel files and pdf files to download and no commercials and it's an area where auditors often have to find help often need specialists in other words the auditor is going to be able to know or want to know what type of audit procedures what type of internal controls are necessary for example a good separation of duties work with the it professional in order to see whether or not that separation of duties has been implemented into the database system often with some kind of separation or restriction to the type of information that can be accessed through a database program so obviously with larger and larger companies there's going to be a larger and larger it requirements larger restrictions of data and so certain people are going to have access to certain types of things and that's going to be one of the huge benefits that you can have you can have a database program that allows different people to have this different access one of the benefits that you have so i noticed when we think about information technology to businesses a lot of times i get one of two reactions one is a lot of excitement for the separation of duties they can be taken place and increase in internal controls and a higher level of safety to some degree and another with a lot of skepticism in terms of if we don't understand the system that's put together and possibly risk to something like hackers or something to get information that wasn't intended for them to have or possibly internal controls that aren't well designed and the separation duty not being well designed for some reason and therefore having some exposure to information that could be going to the wrong place is one of the major defaults or one of the major problems with technology so let's go through some of the benefits pros and cons of technology here with regards to the internal controls benefits include consistent application of predefined business rules and performance of complex calculations in processing large volumes of transactions or data so in other words when we're thinking of course of large volumes transactions or data if we can set up a system that they're all going to be the same in other words if they follow the same set of rules a database program can apply those very efficiently over a long period of time much more efficiently of course than an individual can so any kind of repetitive work that can be put together with a system of rules is something that's great because the average the time will be better and of course the consistency will be better as well a facilitation of data analytics for enhanced internal decision making so it could provide better analytical procedures again saving a lot of time with regards to the processing of the analytical procedure the information now I can't make the decision of course but just putting the information together put it in those well-defined once again types of calculations that it can just take the information from and then generate that information for us in such a way that we can then decide on it is great greater timeliness availability and accuracy of information so the information is usually going to be able to be put together more quickly with a database type program more available because we have a lot more ability to get to the database program especially now considering it might be over the web or something like that different axis type of area for it and accuracy is actually should increase if we use the system well doesn't a system doesn't mean that it's going to be accurate for sure because we could still find ways to have problems but if we design the system well and we we know what the system does well calculations it then it's going to be accurate with with regards to those calculations as long as we put the input in there correctly greater ability to monitor the entities activities policies and procedures on a timely basis so once we have stuff into the system we can do a lot of monitoring systems a lot more easily and that's one great thing about these database systems that we can have that separation of duties we can have certain people be able to monitor what other people are doing while still restricting whether or not they can change that information that the other person does and that allows for great separation of duty and great ability for supervision techniques to basically happen over that database type of system enhance segregation of duties through security controls applications databases and operating systems so segregation of duties that's one of the major major major internal controls that we're going to have that's one of our checks and balances the system will allow us to do that so we'll be able to say you only have control over this part you only have control over that part and therefore we'll be able to separate duties so notice that as a company grows and gets larger we typically have more internal controls more separation of duties and it can be when you when you look at it from the from the worker standpoint and all you can see on your end is like I only have limited access to this database program and I can't see what everything else is going on it can be restrictive at the same time notice that too much separation of duties too much restriction to people in terms of how much access they have to a certain database limits some things as well as well because it is basically red tape but you need to find that balance and it's a great way the database program is a great tool to be able to find balance in that you can limit certain areas for certain people in terms of what they can access in the database program greater ability to to prevent or detect a circumvention of controls so we can also have a better supervision type of duties oftentimes to be able to track what's happening we can actually see you know who was in the database program who is doing what within the database program risks then these are like basically the downside unauthorized access to data that may result in destruction of data or improper changes to the data so it's quite possible when you have the database program even if you put the right restrictions in that people can get access to it because of course the especially if something's on some type of online database program nothing is completely secure of course and it's quite possible that you can have problems if you don't have a well designed database program then it's quite possible that people are going to get the access to the data or improper people are going to get access to the data possibly do something such as an error delete the data or have some kind of changes or do something improper to the data reliance on systems or programs that are known to management incorrectly process data process incorrect data or both if we have very complex database systems this is happening more and more because what happens is management no longer having to do the calculation but just depending on the number that has been gotten from the calculation no longer understands the complex calculation itself so the the data input therefore that you're going to put into the system in order to generate these types of calculation could be off because a lot of times we don't know as much in terms of what needs to be input properly in order for the computer to do a complex calculation to get the right result and once the the right once the result has has come out we may not be able to interpret it quite as well because we don't we're not understanding the process we're not going through the calculations of it so although the computer can do complex calculations the ability for us to interpret them and their and also put in the data necessary to do them properly I can actually deteriorate as we become more dependent on the computer to do the calculation unauthorized changes to system or programs so there could be obviously unauthorized changes we got to be able to make sure that we have controls over who is operating the system problem with that one is that obviously the person that's designing the internal control system that has an idea of what the separation of duty should be is separate from the it department that knows how to actually implement the segregation of duties in the it process and there has to be really good communication between those individuals to put into a separation of duties that works under authorized changes to data a similar kind of problem inappropriate manual intervention so we could have you know manual interventions within the system that are not properly put in place again and this all comes down to how well the database program is going to be set up potential loss of data it's possible that we could lose the data we always have to be thinking about how are we going to conserve the data because if we're in a system where we're not basically saving everything off the system and basically putting it into a file somewhere like it used to be where we have hard copies and whatnot then all of our data is on a server somewhere and the question is of course that server can be you know deleted can we lose the server information if there was a problem how do we support this information how can we possibly back up this information that all becomes an issue as we get more information on on a database system as opposed to a more of a traditional system