You are a manager for the CPA firm of Dewey, Cheatem, and Howe (DC&H). Whilereviewing your staff's audit work papers for the state welfare agency, you find that the test data approach was used to test the agency's accounting software

A duplicate program copy, the welfare accounting data file obtained from the computer operations manager,and the test transaction data file that the welfare agency's programmers used when the program was written were processed on DC&H's home office computer. The edit summary report listing no errors was included in the working papers, with a notation bythe senior auditor that the test indicates good application controls. You note that the quality of the audit conclusions obtained from this test is flawed in several respects, and youdecide to ask your subordinates to repeat the test.
Identify three existing or potential problems with the way this test was performed. For each problem, suggest one or more procedures that might be performed during the revised test to avoid flaws in the audit conclusions.

Problems Suggested Solutions
Duplicate copy of the program may not be a true duplicate of the current version. • Source code comparison.
• Reprocessing (use previously valid program).
• Process test transactions concurrently with live ones, on a concealed basis.
Duplicate copy of the file may not be a true duplicate of the current version. • Obtain the live file and duplicate it under audit control.
• Process test transactions concurrently with live ones, on a concealed basis.
Programmer's test data file
a. was not independently prepared, and
b. may not have contained any erroneous transactions to test the program's ability to detect errors. • Auditor must devise their own test transactions, either (a) manually, or (b) using a test data generator. Erroneous transactions should deliberately be included.
The test only checks the programs, not the source data controls, error procedures, etc. • Process test transactions concurrently with live ones, on a concealed basis.
• Use mini-company test (Integrated Test Facility).
Audit senior's conclusion has no basis (no supporting evidence). • Must predetermine the result of test data processing, and then compare these to actual results.