Question

During the initial planning phase of the audit is an ideal time to use a REA...

During the initial planning phase of the audit is an ideal time to use a REA diagram. Do you see any additional uses later on in the other parts of the audit?

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Answer #1

An REA diagram presents a model of the company’s database. Included in the model is a representation of all the tables contained in the database as well as all of the relationships that exist between the tables within the database. These tables and relationships reflect the business processes and business events of the company. Thus, an auditor can use an REA diagram to understand which events affect the organization’s resources and which agents participate in them. The information about cardinalities in an REA diagram provides useful information about an organization’s business practices, such as whether it permits customers to make installment payments.

Thus, auditors can use REA diagrams to plan the audit. For example, examination of an REA diagram would reveal whether the organization extends credit to its customers, which would then require audits of accounts receivable, or only makes cash sales.

In addition, an auditor can use an REA diagram to test a client’s business processes for compliance with various controls that the client has created. For example, the auditor can design queries linking various employees to different events in order to evaluate whether there is adequate segregation of duties.

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