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 Standard on Internal Audit (SIA) 18, Related Parties
 Standard on Internal Audit (SIA) 17, Consideration of Laws and Regulations in an Internal Audit
 Standard on Internal Audit (SIA) 16, Using the Work of an Expert
 Standard on Internal Audit (SIA) 14, Internal Audit in an Information Technology Environment
 Standard on Internal Audit (SIA) 13, Enterprise Risk Management
 Standard on Internal Audit (SIA) 12, Internal Control Evaluation
 Standard on Internal Audit (SIA) 11, Consideration of Fraud in an Internal Audit
  Standard on Internal Audit (SIA) 9, Communication with Management
  Standard on Internal Audit (SIA) 8, Terms of Internal Audit Engagement
 Standard on Internal Audit (SIA) 7, Quality Assurance in Internal Audit
 Standard on Internal Audit (SIA) 6, Analytical Procedures
 Standard on Internal Audit (SIA) 5, Sampling
 Standard on Internal Audit (SIA) 4, Reporting
 Standard on Internal Audit (SIA) 330, Internal Audit Documentation

Standard on Internal Audit (SIA) 14, Internal Audit in an Information Technology Environment
November, 28th 2018
        STANDARD ON INTERNAL AUDIT (SIA) 14
    INTERNAL AUDIT IN AN INFORMATION TECHNOLOGY
                    ENVIRONMENT*

Contents
                                                                                Paragraph(s)
Introduction            .......................................................................... 1-2
IT Environment- Matters to Consider............................................ 3
Skills and Competence ............................................................ 4-5
Planning ................................................................................... 6-9
Risk Assessment ................................................................. 10-12
Audit Procedures .......................................................................13
Review of Information Technology Environment ................... 14-15
Outsourced Information Processing ...........................................16
Documentation ...........................................................................17
Effective Date .............................................................................18

    The following is the text of the Standard on Internal Audit
    (SIA) 14, Internal Audit in an Information Technology
    Environment, issued by the Council of the Institute of
    Chartered Accountants of India. These Standards should be
    read in conjunction with the Preface to the Standards on
    Internal Audit, issued by the Institute.
    In terms of the decision of the Council of the Institute of
    Chartered Accountants of India taken at its 260 th meeting held
    in June 2006, the following Standard on Internal Audit shall be
    recommendatory in nature in the initial period. The Standards
    shall become mandatory from such date as notified by the
    Council.


    Being Published in the March, 2009 issue of The Chartered Accountant.
*
Standard on Internal Audit (SIA) 14

Introduction

1.   The purpose of this Standard on Internal Audit (SIA) is to establish
     standards on procedures to be followed when an internal audit is
     conducted in an information technology (IT) environment. An information
     technology environment exists when one or more computer(s) of any type
     or size is (are) involved in the processing of financial information, including
     quantitative data, and other types of information processing whether those
     computers are operated by the entity or by a third party. An IT system is a
     system that uses technology to capture, classify, summarize and report
     data in a meaningful manner to interested users, including an enterprise
     resource planning (ERP) system.

2.   The overall objective and scope of an internal audit does not change in
     an IT environment. However, the use of a computer changes the
     processing, storage, retrieval and communication of financial
     information and the interplay of processes, systems and control
     procedures. This may affect the internal control systems employed by
     the entity. Accordingly, an IT environment may affect:

     a) the procedures followed by the internal auditor in obtaining a sufficient
        understanding of the processes, systems and internal control system;
        and
     b) the auditor's review of the entity's risk management and continuity
        systems.

IT Environment ­ Matters to Consider

3.   The internal auditor should consider the effect of an IT environment
     on the internal audit engagement, inter alia:

     a. the extent to which the IT environment is used to record,
        compile, process and analyse information; and


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     Internal Audit in an Information Technology Environment

     b. the system of internal control in existence in the entity with
        regard to:

             the flow of authorised, correct and complete data to the
             processing centre;
             the processing, analysis and reporting tasks undertaken in
             the installation; and
             the impact of computer-based accounting system on the
             audit trail that could otherwise be expected to exist in an
             entirely manual system.

Skills and Competence
4.   The internal auditor should have sufficient knowledge of the
     information technology systems to plan, direct, supervise, control
     and review the work performed. The sufficiency of knowledge would
     depend on the nature and extent of the IT environment. The internal
     auditor should consider whether any specialised IT skills are needed
     in the conduct of the audit, for example, the operating knowledge of
     a specialised ERP system. Specialised skills may be needed, for
     example, to:

     a) obtain sufficient understanding of the effect of the IT environment on
        systems, processes, internal control and risk management systems;
     b) design and perform appropriate tests of control and substantive
        procedures; and
     c) determine the effect of the IT environment on assessment of overall
        audit risk.

5.   If specialized skills are needed, the internal auditor should seek the
     assistance of a technical expert possessing such skills, who may
     either be the internal auditor's staff or an outside professional. If the
     use of such a professional is planned, the internal auditor should, in
     accordance with SIA16, "Using the Work of an Expert", obtain


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Standard on Internal Audit (SIA) 14

     sufficient appropriate evidence that the work performed by the
     expert is adequate for the purposes of the internal audit.

Planning

6.   The internal auditor should obtain an understanding of the systems,
     processes, control environment, risk-response activities and internal
     control systems sufficient to plan the internal audit and to determine
     the nature, timing and extent of the audit procedures, in accordance
     with SIA 1, "Planning an Internal Audit". Such an understanding would
     help the internal auditor to develop an effective audit approach.

7.   In planning the portions of the internal audit which may be affected
     by the IT environment, the internal auditor should obtain an
     understanding of the significance and complexity of the IT activities
     and the availability of the data for use in the internal audit. This
     understanding would include such matters as:

     i)   the information technology infrastructure [hardware, operating
          system(s), etc., and application software(s)] used by the entity
          including changes, if any, therein since last audit.
     ii) the significance and complexity of computerised processing in each
         significant application. An application may be considered to be
         complex when, for example:
          a) the volume and materiality of transactions is such that users
             would find it difficult to identify and correct errors in processing.
          b) the computer automatically generates material transactions or
             entries directly to another application.
          c) the computer performs complicated computations of financial
             information and/or automatically generates material transactions
             or entries that cannot be (or are not) validated independently.









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     Internal Audit in an Information Technology Environment

         d) transactions are exchanged electronically with other
            organisations [as in electronic data interchange (EDI) systems]
            without manual review for propriety or reasonableness.
     iii) determination of the organisational structure of the client's IT activities
          and the extent of concentration or distribution of computer processing
          throughout the entity, particularly, as they may affect segregation of
          duties.
     iv) determination of the availability of data. Source documents, computer
         files, and other evidential matter that may be required by the internal
         auditor may exist for only a short period or only in machine-readable
         form. Information Technology systems may generate reports that
         might be useful in performing substantive tests (particularly analytical
         procedures). The potential for use of computer-assisted audit
         techniques may permit increased efficiency in the performance of
         internal audit procedures, or may enable the auditor to economically
         apply certain procedures to the entire population of transactions.

8.   When the information technology systems are significant, the
     internal auditor should also obtain an understanding of the IT
     environment and whether it influences the assessment of inherent
     and control risks. The nature of the risks and the internal control
     characteristics in IT environments include the following:

     a. Lack of transaction trails: Some IT systems are designed so that a
        complete transaction trail that is useful for audit purposes might exist
        for only a short period of time or only in computer readable form.
        Where a complex application system performs a large number of
        processing steps, there may not be a complete trail. Accordingly,
        errors embedded in an application's program logic may be difficult to
        detect on a timely basis by manual (user) procedures.
     b. Uniform processing of transactions: Computer processing uniformly
        processes like transactions with the same processing instructions.
        Thus, the clerical errors ordinarily associated with manual processing

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Standard on Internal Audit (SIA) 14

          are virtually eliminated. Conversely, programming errors (or other
          systemic errors in hardware or software) will ordinarily result in all
          transactions being processed incorrectly.
     c. Lack of segregation of functions: Many control procedures that would
        ordinarily be performed by separate individuals in manual systems
        may become concentrated in a IT environment. Thus, an individual
        who has access to computer programs, processing or data may be in
        a position to perform incompatible functions.
     d. Potential for errors and irregularities: The potential for human error in
        the development, maintenance and execution of computer information
        systems may be greater than in manual systems, partially because of
        the level of detail inherent in these activities. Also, the potential for
        individuals to gain unauthorised access to data or to alter data without
        visible evidence may be greater in IT than in manual systems. In
        addition, decreased human involvement in handling transactions
        processed by computer information systems can reduce the potential
        for observing errors and irregularities. Errors or irregularities occurring
        during the design or modification of application programs or systems
        software can remain undetected for long periods of time.
     e. Initiation or execution of transactions: Information Technology
        systems may include the capability to initiate or cause the execution
        of certain types of transactions, automatically. The authorisation of
        these transactions or procedures may not be documented in the
        same way as that in a manual system, and management's
        authorisation of these transactions may be implicit in its acceptance of
        the design of the information technology systems and subsequent
        modification.
     f.   Dependence of other controls over computer processing: Computer
          processing may produce reports and other output that are used in
          performing manual control procedures. The effectiveness of these
          manual control procedures can be dependent on the effectiveness of
          controls over the completeness and accuracy of computer
          processing. In turn, the effectiveness and consistent operation of

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      Internal Audit in an Information Technology Environment

           transaction processing controls in computer applications is often
           dependent on the effectiveness of general computer information
           systems controls.
      g. Potential for increased management supervision: IT systems can offer
         management a variety of analytical tools that may be used to review
         and supervise the operations of the entity. The availability of these
         analytical tools, if used, may serve to enhance the entire internal
         control structure.
      h. Potential for the use of computer-assisted audit techniques: The case
         of processing and analysing large quantities of data using computers
         may require the auditor to apply general or specialised computer audit
         techniques and tools in the execution of audit tests.
     Both the risks and the controls introduced as a result of these
     characteristics of information technology systems have a potential impact
     on the internal auditor's assessment of risk, and the nature, timing and
     extent of audit procedures.

9.    While evaluating the reliability of the internal control systems, the
      internal auditor should consider whether these systems, inter alia:

      a. ensure that authorised, correct and complete data is made
         available for processing;
      b. provide for timely detection and correction of errors;
      c. ensure that in case of interruption in the working of the IT
         environment due to power, mechanical or processing failures,
         the system restarts without distorting the completion of the
         entries and records;
      d. ensure the accuracy and completeness of output;

      e. provide adequate data security against fire and other calamities,
         wrong processing, frauds etc;
      f.   prevent unauthorised amendments to the programs; and

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Standard on Internal Audit (SIA) 14

      g. provide for safe custody of source code of application software
         and data files.

Risk Assessment

10.   The internal auditor should make an assessment of inherent and
      control risks for material assertions related to significant processes
      and systems. These assertions apply to significant processes and
      systems for example - sales, procurement, inventory management,
      production, marketing, human resources and logistics.

11.   The internal auditor should review whether the information
      technology system in the entity considers the confidentiality,
      effectiveness, integrity, availability, compliance and validity of data
      and information processed. The internal auditor should also review
      the effectiveness and safeguarding of IT resources, including ­
      people, applications, facilities and data.

12.   The inherent risks and control risks in an IT environment may have both a
      pervasive effect and an account-specific effect on the likelihood of material
      misstatements, as follows:

      a. The risks may result from deficiencies in pervasive IT activities such
         as program development and maintenance, system software support,
         operations, physical IT security and control over access to special-
         privilege utility programs. These deficiencies would tend to have a
         pervasive impact on all application systems that are processed on the
         IT system.
      b. The risks may increase the potential for errors or fraudulent activities
         in specific applications, in specific databases or master files, or in
         specific processing activities. For example, errors are not uncommon
         in systems that perform complex logic or calculations, or that must
         deal with many different exception conditions. Systems that control
         cash disbursements or other liquid assets are susceptible to
         fraudulent actions by users or by IT personnel.
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      Internal Audit in an Information Technology Environment

Audit Procedures

13.   The internal auditor should consider the IT environment in designing
      audit procedures to review the systems, processes, controls and risk
      management framework of the entity.

Review of Information Technology Environment

14.   The internal auditor should review the robustness of the IT
      environment and consider any weakness or deficiency in the design
      and operation of any IT control within the entity, by reviewing:

      a) System Audit reports of the entity, conducted by independent
         Information System auditors;
      b) Reports of system breaches, unsuccessful login attempts,
         passwords compromised and other exception reports;
      c) Reports of network failures, virus attacks and threats to
         perimeter security, if any;
      d) General controls like segregation of duties, physical access
         records, logical access controls;
      e) Application controls like input, output, processing and run-to-
         run controls; and
      f)   Excerpts from the IT policy of the entity relating to business
           continuity planning, crisis management and disaster recovery
           procedures.

      An illustrative checklist of IT controls to be reviewed by the internal auditor
      is given in the Appendix to this Standard.






15.   If the internal auditor is not able to rely on the effectiveness of the IT
      environment as a result of the review, he may perform such substantive
      testing or test of IT controls, as deemed fit in the circumstances. The
      internal auditor should apply his professional judgment and skill in
                                         9
Standard on Internal Audit (SIA) 14

      reviewing the IT environment and assessing the interfaces of such IT
      infrastructure with other business processes.

Outsourced Information Processing

16.   The internal auditor should assess and review the reliance which the
      management of the entity places on the outsourced agency, in case
      where such information processing has been outsourced to the
      outside party. The risks associated with such outsourced services
      should be considered by the internal auditor in light of the review of
      IT controls prevalent in such outside entity. The internal auditor
      should also review the extent to which the entity's controls provide
      reasonable assurance regarding the completeness, validity,
      reliability and availability of the data and information processed by
      such outsourced agency.

Documentation

17.   The internal auditor should document the internal audit plan, nature,
      timing and extent of audit procedures performed and the
      conclusions drawn from the evidence obtained. In an internal audit in
      IT environment, some or all of the audit evidence may be in the electronic
      form. The internal auditor should satisfy himself that such evidence
      is adequately and safely stored and is retrievable in its entirety as
      and when required.


Effective Date

18.   This Standard on Internal Audit is applicable to all internal audits
      commencing on or after ______. Earlier application of the SIA is
      encouraged.




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        Internal Audit in an Information Technology Environment

                                                                   Appendix
     Illustrative Information Technology Controls to be
    Reviewed During Internal Audit in An IT Environment
                             (Refer paragraph 14)

(The Appendix is only illustrative in nature and does not form part of the
Standard)


 Sr. No.                        CONTROL PARAMETERS

            IT Access Control
    1       There is a structured IT Policy and facility personnel are aware of
            the applicable policies.
            IT Back-up and Recovery
    2       The network has adequately documented backup and recovery
            procedures/plans/schedules for critical sites.
    3       LAN is supported by an uninterruptible power supply (UPS).
    4       UPS tested in the last year (to test the batteries)?
    5       For disaster-recovery purposes, LAN applications have been
            prioritized and scheduled for recovery based on importance to the
            operation.
            IT Environmental Controls
    6       Smoke detection and automatic fire-extinguishing equipments
            installed for adequate functioning and protection against fire
            hazards.
            IT Inventory
    7       There is a complete inventory of the following: Hardware:
            Computers, File Servers, Printers, Modems, Switches, Routers,
            Hubs, etc. Software: all software for each Computer is logged with
            licenses and serial numbers.
    8       There are written procedures for keeping LAN inventory and they
            identify who (title) is responsible for maintaining the inventory
            report.

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Standard on Internal Audit (SIA) 14

   9     Unused equipment is properly and securely stored.
         IT Operations
   10    LAN administrator has a backup person.
   11    LAN administrator monitors the LAN response time, disk storage
         space, and LAN utilization.
   12    LAN administrator is experienced and familiar with operation of
         the LAN facility.
         IT Physical Security
   13    Alarms installed at all potential entry and exist points of sensitive
         areas.
         IT Service Agreements
   14    Vendor reliability considered before purchasing LAN hardware and
         software.
   15    Service log maintained to document vendor support servicing.
   16    LAN hardware and software purchase contracts include
         statements regarding vendor support and licensing.
         IT Virus Protection Policy
   17    The level of virus protection established on servers and
         workstations is determined and the monitoring of infection are
         being done by IT administration. Virus Application should be
         updated on a monthly basis. Laptops if issued should be ensured
         to have secured internet access.




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