Academic journal article Journal of Accountancy

How Safe Are Your Data Transmissions?

Academic journal article Journal of Accountancy

How Safe Are Your Data Transmissions?

Article excerpt

As if electronic data processing (EDP) isn't complex enough, an increasing number of organizations transmit data electronically to and from their various offices, customers and suppliers. The transmitted data, on which major business decisions depend, may be exposed to a wide assortment of dangers: transmission errors, power outages, computer viruses and even sabotage. This article focuses on the transmission process, the internal control considerations and the CPA's role in ensuring the accuracy and safety of the transmitted information.

Unfortunately, there is a dearth of guidance--other than that of the most general nature--on this subject. In fact, most of the professional guidance provided to CPAs on auditing in an EDP environment concentrates on processing--not transmitting--the data.

Data communications--or as those in the business call it, "distributed data processing"--are critical to many businesses, large and small. Many organizations depend on this technology not only to process accounting data, but also to enhance their financial information services and support their operating systems. In addition, auditors rely heavily on transmitted data and government agencies such as the Securities and Exchange Commission receive financial data directly from public companies.

WHAT'S THE CPA'S ROLE

Corporate internal auditors play much less of a role in auditing or supporting the data communication function specifically than they do in auditing or supporting EDP in general. In a survey of internal auditors of 60 United States companies that transmit a great deal of data, 85% of the respondents said they were moderately to heavily involved in supporting the data processing function, but 55% had little or no involvement in auditing the telecommunication of data (see exhibit 1, page 68).

The survey also disclosed that auditing the data communication function is constrained by

* A shortage of auditors in the internal audit division to review the function.

* Auditors' lack of familiarity with the several complex technologies used to transmit data.

* Limited financial resources and difficulties in enforcing controls over system programming activities.

There's no question such problems make external audits more complicated and more difficult.

THE DATA CONNECTION

How much does a CPA need to know about data transmission to keep a watchful eye on this function? This article provides an overview of the essentials.

Organizations that transmit data have several options in selecting a data transmission medium, although not all are available in every locality. As a practical matter, organizations usually transmit data using more than one technology--depending on what's available and cost-benefit considerations--which introduces even more complexity.

In the following list of transmission methods, the generic term "line" (as in "telephone line") is used. The term is becoming a misnomer; some of the communication links involve radio transmissions via satellite, microwave transmissions and fiber optic cables. Most of the long-distance carriers switch to such links frequently even when users employ ordinary telephone lines or private, leased lines.

The most accessible communication medium is the public telephone--a technology with drawbacks. Public telephone service was not designed for digital transmission, so modems are needed to link phone equipment and computers. While some public carriers offer digital s facilities that do not require modems (making them less prone to distortion or signal loss), such facilities are not available everywhere.

Also, telephone networks use switching technology that routes data over various lines to meet the needs of the telephone utility; that means data paths may differ for each transmission. This introduces problems because each route change can distort the signal, and the likelihood of signal loss increases the farther a signal must travel. …

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