April 14, 2011

ISACA IS Audit Standards

The members of ISACA are constantly striving to advance the standards of IS auditing. CISAs should check the ISACA website (www.isaca.org) for updates on a quarterly basis. ISACA added five new standards during 2006-2007 to clarify our minimum level of performance. The current body of ISACA Audit Standards is organized using a format numbered from 1 to 16:

S1 Audit Charter The audit charter authorizes the scope of the audit and grants you responsibility, authority, and accountability in the audit function.

S2 Independence Every auditor is expected to demonstrate professional and organizational independence.

S3 Professional Ethics and Standards of Conduct The auditor must act in a manner that denotes professionalism and respect.

S4 Professional Competence The auditor must have the necessary skills to perform the audit. Continuing education is required to improve and maintain skills.

S5 Planning Successful audits are the result of advance preparation. Proper planning is necessary to ensure that the audit will fulfill the intended objectives.

S6 Performance of Audit Work This standard provides guidance to ensure that the auditor has proper supervision, gains the correct evidence to form conclusions, and creates the required documentation of the audit.

S7 Audit Reporting The auditor report contains several required statements and legal disclosures. This standard provides guidance concerning the contents of the auditor's report.

S8 Follow-up Activities The follow-up activities include determining whether management has taken action on the auditor's recommendations in a timely manner.

S9 Irregularities and Illegal Acts This standard outlines how to handle the discovery of irregularities and illegal acts involving the auditee.

S10 IT Governance This standard covers the authority, direction, and control of the information technology function. Technology is now pervasive in all areas of business. Is the auditee properly managing IT to meet their needs?

S11 Use of Risk Analysis in Audit Planning This standard provides guidance for implementing a risk-based approach in audit planning. Risk planning is used to determine whether an audit is possible. Auditors always weigh our level of competency to conduct the audit. Audit plans should be structured for the maximum return on investment when designing specific audits, aka impact for the dollar spent.

S12 Audit Materiality Auditors must use evidence that portrays the most accurate story. The absence of controls or a potential weakness may cumulatively result in unacceptable risk to the organization. Ineffective controls, absence of controls, and control deficiencies should be disclosed in the audit report.

S13 Using the Work of Other People It's impossible for the auditor to perform all the work alone. The work of other experts may be included in the audit, provided the auditor is satisfied with their competencies, relevant experience, professional qualifications, independence, and quality control. A scope limitation may be required in the final audit opinion if the other experts do not provide appropriate and sufficient evidence. An expert working in the same area as the one being audited should not be relied on.

S14 Proper Audit Evidence Appropriate evidence includes the written procedures performed by the auditor, source documents, corroborating records, samples, and corresponding test results. Reliable evidence is based on its source, natural state, and authenticity. Audit evidence must be specifically identified, cataloged, and cross-referenced in the audit documentation, via auditor notes and working papers.

S15 Effective IT Controls Working IT controls represent an integral foundation in the organization's overall internal control environment. IS auditors should monitor and evaluate the effect or absence of IT controls. It's necessary to help management understand the IT controls' design, implementation, and methods of improvement. The level of effective controls provided by outsourcing, or their absence, may help or hurt the organization.

S16 Electronic Commerce Controls E-commerce allows the business to conduct electronic transactions with other businesses (business-to-business, or B2B) and directly to consumers (business-to-consumer, or B2C) over the public Internet. E-commerce requires the auditor to implement risk-based audit plans with data-gathering techniques for continuous assurances regarding the security and integrity of the environment. ISACA standard S16 excludes non-Internet-based private networks such as Electronic Data Interchange (EDI) and Society for Worldwide Interbank Financial Telecommunication (SWIFT).
During the audit process, you will find clients are more receptive when your audit goals are linked to specific citations in the audit standards. You should aim to fill a known and defined point of compliance rather than provide a vague statement relating to something you may have read in a textbook. Don't make the mistake of trusting your job to misinformation, rumors, or free advice on the Internet.

Most of the IT controls originated from demands imposed by a government agency. Security started in the military. Budgets and financial tracking were introduced by the banking industry. In fact, the first internal control in business was the budget. Since 1998, additional internal controls have been added each year. Figure 1 demonstrates the relationship of these various sources.

Figure 1: Where I.T. control standards originate

April 12, 2011

Auditor Role versus Auditee Role

There are only two titles for persons directly involved in an audit. First is the auditor, the one who investigates. 

Second is the auditee, the subject of the audit. A third role exists which is normally outside of the audit, known as the client. ISACA refers to these as audit roles versus nonaudit roles.

Let's clarify the titles and basic roles of these people by their relationship to the audit. We can refer to them as members of the following categories:

Auditor The auditor is the competent person performing the audit.

Auditee The organization and people being audited are collectively called the auditee.

Client The client is the person or organization with the authority to request the audit. A client may be the audit committee, external customer, internal audit department, or regulatory group. If the client is internal to the auditee, that client assumes the auditee role.

Everyone else is considered outside of the audit roles. Audit details should be kept confidential from persons not directly involved as auditee or the client.

Your purpose as an auditor is to be an independent set of eyes that can delve into the inside of organizations on behalf of management or can certify compliance on behalf of everyone in the outside world. Independent means that you are not related professionally, personally, or organizationally to the subject of the audit. You cannot be independent if the audit's outcome results in your financial gain or if you are involved in the auditee's decisions or design of the subject being audited.

When determining whether you are able to perform a fair audit, you should conduct an independence test. In addition, you must remain aware of your responsibility as an auditor under the various auditing standards.

Applying an Independence Test

Here is a simple self assessment to help you determine your level of independence:
  • Are you auditing something you helped to develop?

  • Are you free of any conflicts, circumstances, or attitudes toward the auditee that might affect the audit outcome?

  • Is your personal life free of any relationships, off-duty behavior, or financial gain that could be perceived as affecting your judgment?

  • Do you have any organizational relationships with the auditee, including business deals, financial obligations, or pending legal actions?

  • Do you have a job conflict? Does the organizational structure require your position to work under the executive in charge of the area being audited?

  • Did you receive any gifts of value or special favors?
If any answer is "yes," you are not independent. Any conflicts will place a shadow of doubt on the objectivity of the audit findings. Only internal auditors (whose aim is to improve internal performance) can answer yes and still possibly continue the audit. External auditors are required to remain independent during an independent audit. Any potential conflicts should be disclosed immediately to the lead auditor. You may be reassigned to eliminate the conflict. The lead auditor may determine that the impact is low enough that you can remain in the role as long as the client sponsor is aware of the situation. Attempting to hide the truth is a bad idea. No conflict means you are cleared to proceed.

Sir/Madam, In my role as external auditor, I must remain independent of design decisions; otherwise, I would not be able to provide you the independence and objectivity required. Providing design advice would be a violation of several standards governing auditor independence, including public corporation audit standard AS-1, GAAP audit practices, ISACA professional standards, and Statement on Auditing Standards 1, 37, and 74 (SAS-1, SAS-37, and SAS-74).
You are encouraged to explain what an auditor looks for during an audit. You must be careful not to participate in design decisions, detailed specification, or remediation during your role as the auditor. You may be hired to help with remediation; however, you will be disqualified from auditing any related work. The same principle applies to design work and system operation.

Auditors have the luxury of being able to rely on well-known accounting standards that have been accepted worldwide. The standards were originally developed for financial audits, but their spirit and intent also apply to IS auditing. Frequently, a minor adaptation will provide the foundation and detail necessary for use in IS audits. These standards allow you to render a fair opinion without fear of retribution or liability.

Understanding the Various Auditing Standards

Understanding the basic types of audits: audits either verify compliance (compliance test) or check the substance and integrity of a claim (substantive test). Just how does an auditor know what to do in these audits? As an IS auditor, you are fortunate to have several credible resources available to assist you and guide your clients.

Among these resources are standards and regulations that direct your actions and final opinion. It would be quite rare to depart from these well-known and commonly accepted regulations. In fact, you would be in an awkward situation if you ever departed from the audit standards. By following known audit standards, you are relatively safe from an integrity challenge or individual liability. By adhering to audit standards, a good auditor can operate from a position that is conceptually equal to Teflon nonstick coating. Nothing negative or questionable could stick to the auditor.

You can learn more about auditing standards by reading and then implementing information provided by the following:
  • American Institute of Certified Public Accountants (AICPA) and International Federation of Accountants (IFAC).

  • Financial Accounting Standards Board (FASB) with Statement on Auditing Standards (SAS), standards 1 through 114, which are referenced and applied by the AICPA and IFAC.

  • Generally Accepted Accounting Principles (GAAP).

  • Committee of Sponsoring Organizations of the Treadway Commission (COSO), providing the COSO internal control framework that is the basis for standards used in global commerce. COSO is the parent for the standards used by governments around the world.

  • Public Company Accounting Oversight Board (PCAOB) of the Securities and Exchange Commission, issuing audit standards AS-1, AS-2, AS-3, AS-4, and AS-5. PCAOB is the standards body for Sarbanes-Oxley, including the international implementation by the Japanese government and European Union (US-SOX, J-SOX and E-SOX).

  • Organization for Economic Cooperation and Development (OECD), providing guidelines for participating countries to promote standardization in multinational business for world trade.

  • International Organization for Standardization (ISO), which represents participation from more than member governments.

  • U.S. National Institute of Standards and Technology (NIST), providing a foundation of modern IS standards used worldwide. When combined with British Standards/ISO (BS/ISO), you get a wonderful amount of useful guidance.

  • U.S. Federal Information Security Management Act (FISMA), which specifies minimum security compliance standards for all systems relied on by the government, including the military and those systems operated by government contractors. (The U.S. government is the world's largest customer.)

  • IS Audit and Control Association (ISACA) and IT Governance Institute (ITGI) issue the Control OBjectives for IT (CObIT) guidelines which are derived from COSO with a more specific emphasis on information systems.

  • Basel Accord Standard II (Basel II), governing risk reduction in banking.
Although this list may appear daunting, it is important to remember that all these examples are in fundamental agreement with each other. Each standard supports nearly identical terms of reference and supports similar audit objectives. These standards will have slightly different levels of audit or audit scope. ITGA and ISACA have developed a set of IT internal control standards for CISAs to follow. These incorporate several objectives of the COSO internal control standard that have been narrowed to focus on IT functions. Let's look at a brief overview of the ISACA standards.

April 10, 2011

Classifying Basic Types of Audits

We can classify audits into three basic categories. Each of these represents a slightly different level of trust and unique objectives. The purpose is always to determine the truth.

Internal audits and assessments This involves auditing your own organization to discover evidence of what is occurring inside the organization (self-assessment). These have restrictions on their scope, and the findings should not be shared outside the organization. The findings cannot be used for licensing.

External audits External audits involve your customer auditing you, or you auditing your supplier. The business audits its customer or supplier, or vice versa. The goal is to ensure the expected level of performance as mutually agreed upon in their contracts.

Independent audits Independent audits are outside of the customer-supplier influence. Third-party independent audits are frequently relied on for licensing, certification, or product approval. A simple example is independent consumer reports.

So what will the CISA be asked to look at during an audit? Auditors are called to audit products, processes, and systems. Each of these requires a different approach. Let's review the basic approach required for each of these audits to be successful:
Product audits check the attributes against the design specification (size, color, markings). The 2007 hazardous toy recall of over a million Chinese-manufactured toys for Mattel is an example of using a product audit. The lead-based paint used on the toys was in violation of the design specifications. You can expect that CISAs will audit more software products than toys.

Process audits evaluate the process method to determine whether the activities or sequence of activities meet the published requirements. We want to see how the process is working. This involves checking inputs, actions, and outputs to verify the process performance.

System audits seek to evaluate the management of the system, including its configuration. The auditor is interested in the team members' activities, control environment, event monitoring, how customer needs are determined, who provides authorization, how changes are implemented, preventative maintenance, and so forth, including incident response capability.

Financial audit verifies financial records, transactions, and account balances. This type of audit is used to check the integrity of financial records and accounting practices compared to well-known accounting standards.

Operational audit verifies effectiveness and efficiency of operational practices. Operational audits are used frequently in service and process environments, including IT service providers. An operational audit is detailed in Statement on Auditing Standard 70 (SAS-70).

Integrated audit includes both financial and operational controls audits. An integrated audit is detailed in SAS-94.

Compliance audit verifies implementation of and adherence to a standard or regulation. This could include ISO standards and all government regulations. A compliance audit usually includes tests for the presence of a working control.

Administrative audit verifies that appropriate policies and procedures exist and have been implemented as intended. This type of audit usually tests for the presence of required documentation.

Information systems certification and/or accreditation. Certification usually involves system testing against a reference standard, whereas accreditation represents management's level of acceptance.
Now we need to move on to the different roles people play in the audit.

April 8, 2011

Preventing Ethical Conflicts

Auditors are bombarded by certain people attempting to sway us from our straight and narrow course of honesty. Seemingly simple violations can become uncontrollable career killers. Do not allow yourself to participate in any situation that could tarnish your image as an auditor. Just having a false reputation of dishonest activity will quash your career like a black plague. Let's look at a few common examples:
  • Copyright violations. The possession, purchase, or distribution of bootleg materials will lead to forfeiting your CISA certification along with any other certifications requiring an ethics statement. You don't have to be convicted of a crime to lose your certification. Make sure that you purchase only genuine software and commercially licensed copies of printed material. Don't use anything except your own copies of materials that were rightfully obtained from the license holder. This includes copies of the ISO standards, software tools, special reports, and even this book or CD. Always be prepared to show the receipt and original product to prove you are honest and ethical. Lack of evidence implies guilt. Vendors' shipping records are an excellent source of proof. Trafficking in bootlegs provides an excellent route to living in jail.

  • Guilty people get amnesty for turning you in. It's unfair, but the guiltiest will typically get amnesty for turning someone else in for participation. So the person who says, "don't worry" is not worried. They secretly know that you will become their scapegoat at the first sign of trouble. Beware of any special deal or exception that can be used against you. The truth never stays secret.

  • Failing to follow your own rules. Make sure that you uphold the spirit and intent of the audit profession. The worst thing you could do to kill your career is to give the perception that you violate the rules yourself. It's necessary to "walk the talk" by doing everything right, just as you expect from your customer. By doing this religiously, you will become almost bulletproof.

  • Review the beginning of this chapter again if you need any examples of executives and auditors being "burned at the stake" for violating the public's trust.

  • Avoid violating the law. Being associated with a suspected scam is nearly as damaging as being convicted in the courtroom. The best way to stay out of trouble is to avoid questionable deals. Never accept a free or loaner copy of software from IT workers. It's a trap that usually involves someone bragging about how they helped you out by violating the law, ethics, or company policy.

  • Report violations promptly. Remember, the person reporting (in this case, you) will usually get amnesty, unless someone else turns you in first. You need to be prepared to turn over evidence unless you want to join others in their convictions. Honest auditors always report the truth. It's what keeps us in business.
An audit is simply a review of past history. The IS auditor is expected to follow the defined audit process, establish audit criteria, gather meaningful evidence, and render an independent opinion about internal controls. The audit involves applying various techniques for collecting meaningful evidence, and then performing a comparison of the audit evidence against the standard for reference.

If the assertions of management and the auditor's report are in agreement, you can expect the results to be truthful. If management assertions and the auditor's report do not agree, that would signal a concern warranting further attention.

Your key to success in auditing is to accurately report your findings, whether good or bad or indifferent. A good auditor will produce verifiable results. No one should ever come in behind you with a different outcome of findings. Your job is to report what the evidence indicates.

April 6, 2011

Understanding the ISACA Code of Professional Ethics

The Information Systems Audit and Control Association (ISACA) set forth a code governing the professional conduct and ethics of all certified IS auditors and members of the association. As a CISA, you are bound to uphold this code. The following eight points represent the true spirit and intent of this code:
  • You agree to support the implementation of appropriate policies, standards, guidelines, and procedures for information systems. You will also encourage compliance with this objective.

  • You agree to serve the interests of stakeholders in an honest and lawful manner that reflects a credible image upon your profession. The public expects and trusts auditors to conduct their work in an ethical and honest manner.

  • You promise to maintain privacy and confidentiality of information obtained during your audit except for required disclosure to legal authorities. Information you obtain during the audit will not be used for personal benefit.

  • You agree to undertake only those activities in which you are professionally competent and will strive to improve your competency. Your effectiveness in auditing depends on how evidence is gathered, analyzed, and reported.

  • You promise to disclose accurate results of all work and significant facts to the appropriate parties.

  • You agree to support ongoing professional education to help stakeholders enhance their understanding of information systems security and control.

  • The failure of a CISA to comply with this code of professional ethics may result in an investigation with possible sanctions or disciplinary measures.
Ethics statements are necessary to demonstrate the level of honesty and professionalism expected of every auditor. Overall, your profession requires you to be honest and fair in all representations you make. The goal is to build trust with clients. Your behavior should reflect a positive image on your profession. All IS auditors are depending on you to help maintain the high quality and integrity that clients expect from a CISA.
Every CISA should have a strong understanding of these objectives and how each would apply to different audit situations.

April 3, 2011

Understanding Policies, Standards, Guidelines, and Procedures

A plethora of documentation exists in the operation of any organization. Management uses this documentation to specify operating and control details. Consistency would be impossible without putting this information into writing.
Organizations typically have four types of documents in place:

Policies These are high-level documents signed by a person of significant authority (such as a corporate officer, president, or vice president). The policy is a simple document stating that a particular high-level control objective is important to the organization's success. Policies may be only one page in length. Policies require mandatory compliance.
  • The highest level of people in charge is the officers of upper management. Chief executives, financial officers, and operating officers are the principal issuers of policies.
Standards These are mid-level documents to ensure uniform application of a policy. After a standard is approved by management, compliance is mandatory. All standards are used as reference points to ensure organizational compliance. Testing and audits compare a subject to the standard, with the intention of certifying a minimum level of uniform compliance.
  • Public standards include the International Organization for Standardization (ISO), Sarbanes-Oxley, and most government laws.
Guidelines These are intended to provide advice pertaining to how organizational objectives might be obtained in the absence of a standard. The purpose is to provide information that would aid in making decisions about intended goals (should do), beneficial alternatives (could do), and actions that would not create problems (won't hurt). Guidelines are often discretionary.

Procedures These are "cookbook" recipes for accomplishing specific tasks necessary to meet a standard. Details are written in step-by-step format from the very beginning to the end. Good procedures include common troubleshooting steps in case the user encounters a known problem. Compliance with established procedures is mandatory to ensure consistency and accuracy. On occasion a procedure may be deemed ineffective. The correct process is to update the ineffective procedure by using the change control process described later. The purpose of a procedure is to maintain control over the outcome.

Figure 1 illustrates the hierarchy of a policy, standard, guideline, and procedure.

Figure 1: The relationship between a policy, standard, guideline, and procedure

April 1, 2011

Understanding the Demand for IS Audits

For decades, the dominant control placed upon an organization was the financial audit. Although theft and fraud have always existed, the general expectation was that almost all organizations could be trusted without additional regulations. We expected management to be honest. Well, those naive days are over. Welcome to the new world, which has a growing number of intrusive regulations. Modern business culture is moving rapidly to less trust and more testing.

Let's reflect on a few of the great people who created this wonderful job opportunity for us. Mom always said to give special recognition to those deserving people who help you further your career opportunities:
  • Italy's Parmalat dairy scandal occurred in 2003, when executives admitted that an account that was supposed to be holding 4 billion Euro dollars of assets in the Cayman Islands did not exist. The 14 billion Euro organization collapsed into bankruptcy. According to industry news, four of the world's leading banks were indicted in June 2007 for their participation.

  • Adelphia Communications Corporation executives John Rigas and son Timothy Rigas were convicted of securities fraud, bank fraud for misrepresenting the source of $1.6 billion of funds used in company stock, and stealing $51 million in cash advances. Rigas's illegally misrepresented $2.6 billion of off-balance sheet loans, which led to the company's collapse in 2002. In July 2006, Comcast and Time Warner purchased the failed company and relocated it to Colorado.

  • American International Group (AIG) former CFO Howard Smith overstated income by $3.9 billion (10 percent of income) and loss reserves by $500 million to quiet analyst complaints about AIG's declining financial reserves. Executives at the world's largest insurer are struggling to recover. Securities and Exchange Commission agreed to settle after AIG agreed to pay over 1.6 billon in damages. SEC did not release Mr. Smith from prosecution as the case continues to progress.

  • Arthur Andersen executive David Duncan violated his independence with his client, CFO Andrew Fastow of Enron. Duncan participated in improper, biased activities for Enron by ordering his staff to shred documents to obstruct the Enron investigation.

  • Cendant Vice Chairman E. Kirk Shelton was convicted of fraud in an accounting scandal for falsely inflating income to drive up the stock price.

  • Converse Technology CEO Jacob "Kobi" Alexander was captured by Federal authorities after fleeing the country in an attempt to avoid prosecution for orchestrating a fraudulent scheme of backdating options while running a secret stock options slush fund. This illegal scheme made millions of dollars. CFO David Kreinberg and General Counsel William Sorin voluntarily surrendered to authorities for their participation in the scheme. All three are currently in jail awaiting prosecution.

  • Enron executives Ken Lay, Jeffrey Skilling, Andrew Fastow, Lea Fastow, Ben Glisan Jr., and Dan Boyle were proven guilty for running the world's largest scam of off-balance sheet (OBS) transactions.

  • International Product Investment Corp. (IPIC) CEO Gregory Earl Setser was convicted of conspiracy, securities fraud, and money laundering Mr. Setser has been sentenced to 40 years in prison without parole and ordered to pay approximately $62 million in restitution for running an investment pyramid scam.

  • ImClone Systems CEO Samuel D. Waksal was sentenced to more than 7 years in prison and ordered to pay $4.2 million for insider trading in his attempts to sell off his shares of stock after learning that the Federal Drug Administration was planning to reject ImClone's application for Erbitux, a new cancer drug. In a twist of irony, the FDA granted tentative approval for Erbitux the day after Waksal was sentenced.

  • Former HealthSouth CFO Weston Smith was sentenced to 27 months in prison for his participation in the $2.7 billion accounting fraud at the company. Smith was one of five ex-CFOs who agreed to plead guilty and testify against former CEO Richard Scrushy. Ultimately Scrushy was acquitted on all counts of the accounting fraud charges.

  • Tyco ex-CEO Dennis Kozlowski is serving 8-25 years in prison for stealing $134 million from the company. Ex-CFO Mark H. Schwartz was given the same prison sentence. The scheme involved grand larceny, conspiracy of falsifying business records, and inflating statements of operating income by at least $500 million by using improper accounting practices.

  • Patterson-UTI Energy CFO Jody Nelson was sentenced to 25 years and $77 million restitution for a phony invoice scheme of embezzling $77 million for personal use. (Criminal filing took only two weeks to freeze accounts and assets.)

  • Lincoln Savings and Loan CEO Charles Keating was found guilty of causing the $2.6 billion collapse of the savings and loan industry in 1988. So far the estimated cost of the bailout is said to be over $110 billion ($10 from every person in America). Mr. Keating accused the auditor of having a vendetta against him for bringing the evidence to the attention of regulators.

  • WorldCom ex-CEO Bernard Ebbers is serving 25 years for securities fraud and filing false reports concerning an $11 billion accounting fraud. WorldCom triggered the creation of the U.S. Sarbanes-Oxley Act of 2002 (a corporate governance law for internal controls). CFO Scott Sullivan testified against Ebbers to get a reduced sentence. Controller David Myers admitted he told the accounting staff to make billions of dollars in adjustments to financial statements so their stock price would rise. Former accounting director Buford Yates went to prison for following the orders of his superiors to make billions of dollars of unexplained adjustments in financial records.

  • More than 1,000 successful corporate fraud convictions by the U.S. Securities and Exchange Commission (SEC) from 2002-2005 include the following:
  • 92 corporate presidents
  • 86 chief executive officers (CEOs)
  • 40 chief financial officers (CFOs)
  • 14 chief operating officers (COOs)
  • 98 vice presidents (VPs)
  • 17 attorneys (lawyers serving as corporate council)
Times are rapidly changing worldwide. These global businesses were damaged by bad executive decisions. Even some common business practices that were acceptable five to ten years ago are now illegal. No one in their right mind would want to suffer the fate of those poor souls.

New regulations for more-stringent financial and internal controls are driving business leaders into a controlled frenzy. You may have heard of the following: Sarbanes-Oxley Act (SOX, for corporations), Gramm-Leach-Bliley Act (financial transactions), Federal Information Security Management Act (FISMA, for government), Health Insurance Portability and Accountability Act (HIPAA), Supervisory Control and Data Acquisition (SCADA, for utilities), Fair and Accurate Credit Transactions Act (credit processing), Federal Financial Institutions Examination Council regulations (FFIEC), Payment Card Industry (PCI), and numerous privacy laws worldwide. These are just a sample of the regulations and regulators facing today's businesses.

All of these regulations require businesses to possess two simple components:
  • Evidence of business integrity
  • Evidence of internal controls to protect valuable assets
An asset is defined as anything of value, including trademarks, patents, secret recipes, durable goods, data files, competent personnel, and clients. Although people are not listed as corporate assets, the loss of key individuals is a genuine business threat. We can define a threat as a negative event that would cause a loss if it occurred. The path that allows a threat to occur is referred to as vulnerability. Your job as an IS auditor is to verify that assets, threats, and vulnerabilities are properly identified and managed to reduce risk.

In the past, businesses were allowed to operate with fewer restrictions. The problem with past regulation (or lack thereof) was that many organizations were taking risks that would have been unacceptable to investors and business partners had they been fully informed of corporate actions. Financial auditors were focused on bank balances and transaction totals proving to be correct. Increasing automation enables little mistakes to cascade into massive catastrophes. Stockholders, customers, and the government are looking for reassurance that management has taken the necessary precautions to prevent loss or corruption.

Our economy is founded on banking and investment. The majority of our global economy invests directly or indirectly in stock and financial markets. You may be an indirect investor through pension funds or bank investment portfolios. Unfortunately, there exists a group of individuals who view stock as their own private monetary system. How wonderful it must be to have our money at their disposal, without any terms of repayment, without interest or consideration, and without the requirement to ever pay the money back. Sounds ridiculous, doesn't it? But frankly, that is exactly how the stock market operates. You invest money with the hope that one day you will see something in return, knowing that you could lose it all.

One of the purposes of a controls audit is to ensure that there is reason to believe investors' money is protected from stupid mistakes. Our free enterprise strives to prevent another market collapse and protect the world banking system from crashing. We expect management to specify policies and to create procedures, processes, and safeguards to prevent loss and corruption. It is the job of management to design a solution that effectively protects corporate assets.

As an IS auditor, you must be familiar with the various policies, standards, and procedures of any organization or company that you are auditing. In addition, you must understand the purpose of your audit.