Case 1

The CARE Corporation uses an IBM mainframe computer system with peripheral optical

reader and high-speed laser printer equipment. Transaction information is initially

recorded on paper documents and then read by optical equipment that produces a

magnetic disk containing the data. These data file disks are processed by a computer

program, and printed listings, journals, and general ledger balances are produced on the

high-speed printer equipment.

Required:

Explain how the audit standard requiring "adequate technical training and proficiency" is

complied with the audit of CARE Corporation's financial statements.

Case 2

Increasing use of sophisticated EDP systems has produced significant changes in the

accounting environment. Some of these changes are the following:

a. documents that are used to enter information into the computer may exist for only

a short time or only in computer-readable form. In some computer systems, input

documents may not exist at all, because information is entered directly into the

system.

b. Computer processing uniformly subjects like transactions to the same processing

instructions.

c. Many internal control procedures, once performed by separate individuals in

manual systems, may be combined in systems that use computer processing.

d. The potential for individuals to gain unauthorized access to data or assets may

be greater in computerized accounting systems than in manual systems.

Required:

For each of the changes, discuss the impact on the internal control system and the

independent audit.