You have been assigned to the audit of Mid-State Electronics Corporation, a medium-size distributor of electronics equipment serving a geographic area within a radius of 150 miles. MidState has installed a state-of-the-art personal computer. The client uses it primarily for inventory control and accounting functions, such as billing, sales, accounts receivable, inventory, and payroll. All of the software has been purchased from a major software vendor and has not been modified for MidState. The software has the ability to implement password controls.

During the audit planning process, the auditor has identified the accounting applications as important. The partner has asked you to assess control risk in the computer environment and expects you to recommend the type of substantive testing that might be required.

Required:

a. Develop a control questionnaire that might be used to capture information about general controls and application controls in the computer environment at Mid-State Electronics.

b. Assume that during the course of your inquiry, you discover that the client does not have a systematic process to back up data or programs. The client does not see the need to back up programs, because they can be replaced by directly contacting the software vendor and are available in a very short time. Data files are backed up, but not on a scheduled basis, and are stored in a file cabinet maintained in the controller’s office. What are the implications of these findings to the conduct of the audit?