Welcome » IT Booklets » Audit » Appendix A: Examination Procedures
Examination objectives allow the examiner to determine the quality and effectiveness of the audit function related to IT controls. These procedures will disclose the adequacy of audit coverage and to what extent, if any, the examiner may rely upon the procedures performed by the auditors in determining the scope of the IT examination.
TIER I OBJECTIVES AND PROCEDURES
Objective 1: Determine the scope and objectives of the examination of the IT audit function and coordinate with examiners reviewing other programs. 1. Review past reports for outstanding issues, previous problems, or high-risk areas with insufficient coverage related to IT. Consider:
2. Review the most recent IT internal and external audit reports in order to determine:
3. Review management's response to issues raised since the last examination. Consider:
4. Assess the quality of the IT audit function. Consider:
Using the results from the preceding procedures and discussions with the EIC, select from the following examination procedures those necessary to meet the examination objectives. Note: examinations do not necessarily require all steps. Objective 2: Determine the quality of the oversight and support of the IT audit function provided by the board of directors and senior management. 1. Review board resolutions and audit charter to determine the authority and mission of the IT audit function. 2. Review and summarize the minutes of the board or audit committee for member attendance and supervision of IT audit activities. 3. Determine if the board reviews and approves IT policies, procedures, and processes. 4. Determine if the board approves audit plans and schedules, reviews actual performance of plans and schedules, and approves major deviations to the plan. 5. Determine if the content and timeliness of audit reports and issues presented to and reviewed by the board of directors or audit committee are appropriate. 6. Determine whether the internal audit manager and the external auditor report directly to the board or to an appropriate audit committee and, if warranted, has the opportunity to escalate issues to the board both through the normal audit committee process and through the more direct communication with outside directors. Objective 3: Determine the credentials of the board of directors or its audit committee related to their ability to oversee the IT audit function. 1. Review credentials of board members related to abilities to provide adequate oversight. Examiners should:
2. Determine if the composition of the audit committee is appropriate considering entity type and complies with all applicable laws and regulations. Note - If the institution is a publicly traded company, this is a requirement of Sarbanes-Oxley. Additionally, this is a requirement of FDICIA for institutions with total assets greater than $500 million. Objective 4: Determine the qualifications of the IT audit staff and its continued development through training and continuing education. 1. Determine if the IT audit staff is adequate in number and is technically competent to accomplish its mission. Consider:
Objective 5: Determine the level of audit independence. 1. Determine if the reporting process for the IT audit is independent in fact and in appearance by reviewing the degree of control persons outside of the audit function have on what is reported to the board or audit committee. 2. Review the internal audit organization structure for independence and clarity of the reporting process. Determine whether independence is compromised by:
Objective 6: Determine the existence of timely and formal follow-up and reporting on management's resolution of identified IT problems or weaknesses. 1. Determine whether management takes appropriate and timely action on IT audit findings and recommendations and whether audit or management reports the action to the board of directors or its audit committee. Also, determine if IT audit reviews or tests management's statements regarding the resolution of findings and recommendations. 2. Obtain a list of outstanding IT audit items and compare the list with audit reports to ascertain completeness. 3. Determine whether management sufficiently corrects the root causes of all significant deficiencies noted in the audit reports and, if not, determine why corrective action is not sufficient. Objective 7: Determine the adequacy of the overall audit plan in providing appropriate coverage of IT risks. 1. Interview management and review examination information to identify changes to the institution's risk profile that would affect the scope of the audit function. Consider:
2. Review the institution's IT audit standards manual and/or IT-related sections of the institution's general audit manual. Assess the adequacy of policies, practices, and procedures covering the format and content of reports, distribution of reports, resolution of audit findings, format and contents of work papers, and security over audit materials. Objective 8: Determine the adequacy of audit's risk analysis methodology in prioritizing the allocation of audit resources and formulating the IT audit schedule.
1. Evaluate audit planning and scheduling criteria, including risk analysis, for selection, scope, and frequency of audits. Determine if:
2. Determine whether the institution has appropriate standards and processes for risk-based auditing and internal risk assessments that:
Objective 9: Determine the adequacy of the scope, frequency, accuracy, and timeliness of IT-related audit reports. 1. Review a sample of the institution's IT-related audit reports and work papers for specific audit ratings, completeness, and compliance with board and audit committee-approved standards. 2. Analyze the internal auditor's evaluation of IT controls and compare it with any evaluations done by examiners. 3. Evaluate the scope of the auditor's work as it relates to the institution's size, the nature and extent of its activities, and the institution's risk profile. 4. Determine if the work papers disclose that specific program steps, calculations, or other evidence support the procedures and conclusions set forth in the reports. 5. Determine through review of the audit reports and work papers if the auditors accurately identify and consistently report weaknesses and risks. 6. Determine if audit report content is:
Objective 10: Determine the extent of audit's participation in application development, acquisition, and testing, as part of the organization's process to ensure the effectiveness of internal controls. 1. Discuss with audit management and review audit policies related to audit participation in application development, acquisition, and testing. 2. Review the methodology management employs to notify the IT auditor of proposed new applications, major changes to existing applications, modifications/additions to the operating system, and other changes to the data processing environment. 3. Determine the adequacy and independence of audit in:
Objective 11: If the IT internal audit function, or any portion of it, is outsourced to external vendors, determine its effectiveness and whether the institution can appropriately rely on it. 1. Obtain copies of:
2. Review the outsourcing contracts/engagement letters and policies to determine whether they adequately:
3. Consider arranging a meeting with the IT audit vendor to discuss the vendor's outsourcing internal audit program and determine the auditor's qualifications. 4. Determine whether the outsourcing arrangement maintains or improves the quality of the internal audit function and the institution's internal controls. The examiner should:
5. Determine whether key employees of the institution and the audit vendor clearly understand the lines of communication and how any internal control problems or other matters noted by the audit vendor during internal audits are to be addressed. 6. Determine whether management or the audit vendor revises the scope of outsourced audit work appropriately when the institution's environment, activities, risk exposures, or systems change significantly. 7. Determine whether the directors ensure that the institution effectively manages any outsourced internal audit function. 8. Determine whether the directors perform sufficient due diligence to satisfy themselves of the audit vendor's competence and objectivity before entering the outsourcing arrangement. 9. If the audit vendor also performs the institution's external audit or other consulting services, determine whether the institution and the vendor have discussed, determined, and documented that applicable statutory and regulatory independence standards are being met. Note - If the institution is a publicly traded company, this is a requirement of Sarbanes-Oxley. Additionally, this is a requirement of FDICIA for institutions with total assets greater than $500 million. 10. Determine whether an adequate contingency plan exists to reduce any lapse in audit coverage, particularly coverage of high-risk areas, in the event the outsourced audit relationship is terminated suddenly. Objective 12: Determine the extent of external audit work related to IT controls. 1. Review engagement letters and discuss with senior management the external auditor's involvement in assessing IT controls. 2. If examiners rely on external audit work to limit examination procedures, they should ensure audit work is adequate through discussions with external auditors and reviewing work papers if necessary. Objective 13: Determine whether management effectively oversees and monitors any significant data processing services provided by technology service providers: 1. Determine whether management directly audits the service provider's operations and controls, employs the services of external auditors to evaluate the servicer's controls, or receives sufficiently detailed copies of audit reports from the technology service provider. 2. Determine whether management requests applicable regulatory agency IT examination reports. 3. Determine whether management adequately reviews all reports to ensure the audit scope was sufficient and that all deficiencies are appropriately addressed. CONCLUSIONS Objective 14: Discuss corrective actions and communicate findings. 1. Determine the need to perform Tier II procedures for additional validation to support conclusions related to any of the Tier I objectives. 2. Using results from the above objectives and/or audit's internally assigned audit rating or audit coverage, determine the need for additional validation of specific audited areas and, if appropriate:
3. Using results from the review of the IT audit function, including any necessary Tier II procedures:
4. Review preliminary examination conclusions with the examiner-in-charge (EIC) regarding:
5. Discuss examination findings with management and obtain proposed corrective action for significant deficiencies. 6. Document examination conclusions, including a proposed audit component rating, in a memorandum to the EIC that provides report-ready comments for all relevant sections of the report of examination. 7. Document any guidance to future examiners of the IT audit area. 8. Organize examination work papers to ensure clear support for significant findings and conclusions. TIER II OBJECTIVES AND PROCEDURES
The Tier II examination procedures for the IT audit process provide additional verification procedures to evaluate the effectiveness of the IT audit function. These procedures are designed to assist in achieving examination objectives and scope and may be used entirely or selectively.
Tier II questions correspond to URSIT rating areas and can be used to determine where the examiner may rely upon audit work in determining the scope of the IT examination for those areas.
Examiners should coordinate this coverage with other examiners to avoid duplication of effort with the examination procedures found in other IT Handbook booklets. A. MANAGEMENT 1. Determine whether audit procedures for management adequately consider:
B. SYSTEMS DEVELOPMENT AND ACQUISITION 1. Determine whether audit procedures for systems development and acquisition and related risk management adequately consider:
C. OPERATIONS 1. Determine whether audit procedures for operations consider:
D. INFORMATION SECURITY 1. Determine whether audit procedures for information security adequately consider the risks in information security and e-banking. Evaluate whether:
2. Determine whether audit procedures for information security adequately consider compliance with the "Interagency Guidelines Establishing Standards for Safeguarding Customer Information," as mandated by Section 501(b) of the Gramm-Leach-Bliley Act of 1999. Consider evaluating whether management has:
E. PAYMENT SYSTEMS 1. Determine whether audit procedures for payment systems risk adequately consider the risks in wholesale electronic funds transfer (EFT). Evaluate whether: Adequate operating policies and procedures govern all activities, both in the wire transfer department and in the originating department, including authorization, authentication, and notification requirements;
2. Determine whether audit procedures for payment systems risk adequately consider the risks in retail EFT (automatic teller machines, point-of-sale, debit cards, home banking, and other card-based systems including VISA/Master Charge compliance). Evaluate whether:
3. Determine whether audit procedures for payment systems risk adequately consider the risks in automated clearing house (ACH). Evaluate whether:
F. OUTSOURCING 1. Determine whether audit procedures for outsourcing activities adequately cover the risks when IT service is provided to external users. Evaluate whether:
2. Determine whether audit procedures for outsourced activities are adequate. Evaluate whether: