Question

The term "test data"is associated with:

a) Auditing through-the-computer
b) Auditing around-the-computer
c) Auditing of manual accounting systems
d) Non-auditing procedures performed by a firm's accounting subsystem employees

Answer 1

Test data is related to auditing through-the-computer and involves creating scenarios with predefined inputs to evaluate an accounting system's data processing accuracy.

Step-by-step explanation:

The term test data is associated with auditing through-the-computer, which involves the use of computer programs and simulations to evaluate the accuracy and integrity of a computer system's processing. This type of auditing is done to ensure that the system accurately processes data and highlights any discrepancies that may suggest errors, fraud, or inefficiencies within the system.

Test data is a crucial component for auditors as it enables them to set up controlled scenarios where they can predict outcomes based on pre-defined inputs. These scenarios help determine if the accounting system correctly processes transactions. This approach differs from auditing around-the-computer, which focuses on verifying the input and output without reviewing the processing steps. Using test data is a method that mirrors a kind of experimental design, as it allows auditors to observe how changes in the test data affect the system's outcomes, similar to manipulating independent variables in empirical research.