There are basically two techniques available to the auditor for auditing through the computer. These are a use of test data and the use of computer audit programs. These methods are ordinarily referred to as computer assisted audit techniques (CAATs).
These are designed to test the performance of the clients' programs. What it involves is for the auditor either using dummy data i.e. data he has created himself or live data i.e. the client's data that was due for processing to manually work out the expected output using the logic and steps of the program. This data is then run on the computer using the program and the results are compared. A satisfactory outcome gives the auditor a degree of assurance that if that programme is used continuously throughout the year, then it will perform as required. You can see that this technique of test data falls under compliance testing work/tests of controls.
(a) Live testing has the following disadvantages:
i. If the data is included with normal data, separate test data totals cannot be obtained. This can sometimes be resolved by the use of dummy branches or separate codes to report the program's effects on the test data.
ii. Side effects can occur. It has been known for an auditor's dummy product to be included in a catalogue.
iii. Client's files and totals are corrupted although this is unlikely to be material.
iv. If the auditor is testing procedures such as debt follow up, then the testing has to be over a fairly long period of time. This can be difficult to organise.
(b) Dummy testing has the following disadvantages:
i. Difficulties will be encountered in simulating a whole system or even a part of it.
ii. A more detailed knowledge of the system is required than with the use of live files.
iii. There is often uncertainty as to whether operational programs are really being used for the test.
iv. The time span problem is still difficult but more capable of resolution than with live testing..