Question

Parallel simulation involves the use of audit software to process functions essentially equivalent to those of the client's program and to determine whether auditor and client results are equivalent.

Answer 1

Parallel simulation is an auditing technique where auditors use their own software to simulate the client's system and compare results to ensure accuracy and reliability in financial reporting.

Step-by-step explanation:

Parallel simulation in auditing refers to a technique used by auditors where they employ audit software to replicate the client's data processing. This method validates the data by comparing the results from the auditor's software with those from the client's system. The aim is to verify that the client's system is processing transactions correctly. This audit procedure is critical in evaluating the integrity of financial information.

For example, an auditor might use parallel simulation to re-calculate interest on a loan portfolio using their software and compare the outcome with the client's interest calculations. If the results match, it provides evidence that the client's system is operating correctly.

This approach is especially useful in today's environment where businesses rely heavily on complex information systems, making traditional auditing methods less effective. Through parallel simulation, auditors can strengthen internal controls and ensure the accuracy and reliability of financial reporting.