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3. Current Auditing Computerized Tools

3.1. Objective and Structure

The objective of this chapter is to provide information about technological

tools and techniques currently used by auditors. Section 3.2 discusses why computer

assisted auditing tools (CAATs) are more than requisite in auditing profession at

present. In section 3.3, general audit software (GAS) is reviewed in detail. The topic

focuses on the most popular software, Audit Command Language (ACL). Other

computerized tools and techniques are briefly identified in section 3.4. Finally, a brief

summary of some currently used CAATs is provided in section 3.5.

Before proceeding, it is worth noting that this chapter was mainly based on two

textbooks and one journal, which are “Accounting Information Systems” (Bonar &

Hopwood, 2001), “Core Concept of Accounting Information System” (Moscove,

Simkin & Bagranoff, 2000) and “Audit Tools” (Needleman, 2001).

3.2. Why Computer Assisted Auditing Tools?

It is accepted that advances in technology have affected the audit process.

With the ever increasing system complexity, especially the computer-based accounting

information systems, including enterprise resource planning (ERP), and the vast amount

of transactions, it is impractical for auditors to conduct the overall audit manually. It is

even more impossible in an e-commerce intensive environment because all accounting

data auditors need to access are computerized.

In the past ten years, auditors frequently outsource technical assistance in some

auditing areas from information system (IS) auditor, also called electronic data

processing (EDP) auditor. However, when the computer-based accounting information

systems become commonplace, such technical skill is even more important. The rate of

growth of the information system practices within the big audit firms (known as “the

Big Five”) was estimated at between 40 to 100 percent during 1990 and 2005

(Bagranoff & Vendrzyk, 2000, 35).

Nowadays, the term “auditing with the computer” is extensively used. It

describes the employment of the technologies by auditors to perform some audit work

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that otherwise would be done manually or outsource. Such technologies are extensively

referred to as computer assisted auditing tools (CAATs) and they are now play an

important role in audit work.

In auditing with the computer, auditors employ CAATs with other auditing

techniques to perform their work. As its name suggests, CAAT is a tool to assist

auditors in performing their work faster, better, and at lower cost. As CAATs become

more common, this technical skill is as important to auditing profession as auditing

knowledge, experience and professional judgement.

There are a variety of software available to assist the auditors. Some are

general-purpose software and some are specially designed that are customized to be

used to support the entire audit engagement processes. Many auditors consider simple

general ledger, automated working paper software or even spreadsheet as audit

software. In this thesis, however, the term audit software refers to software that allows

the auditors to perform overall auditing process that generally known as the generalized

audit software.

3.3. Generalized Audit Software

Generalized audit software (GAS) is an automated package originally

developed in-house by professional auditing firms. It facilitates auditor in performing

necessary tasks during most audit procedures but mostly in the execution and

documentation phase.

Basic features of a GAS are data manipulation (including importing, querying

and sorting), mathematical computation, cross-footing, stratifying, summarizing and file

merging. It also involves extracting data according to specification, statistical sampling

for detailed tests, generating confirmations, identifying exceptions and unusual

transactions and generating reports. In short, they provide auditors the ability to access,

manipulate, manage, analyze and report data in a variety of formats.

Some packages also provide the more special features such as risk assessment,

high-risk transaction and unusual items continuous monitoring, fraud detection, key

performance indicators tracking and standardized audit program generation. With the

standardized audit program, these packages help the users to adopt some of the

profession's best practices.

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Most auditing firms, nowadays, have either developed their own GASs or

purchased some commercially available ones. Among a number of the commercial

packages, the most popular one is the Audit Command Language (ACL). ACL is

widely accepted as the leading software for data-access, analysis and reporting. Some

in-house GAS systems of those large auditing firms even allow their systems to

interface with ACL for data extraction and analysis.

Figure 3.1: ACL software screenshot (version 5.0 Workbook)

ACL software (figure 3.1) is developed by ACL Services Ltd. (www.acl.com).

It allows auditors to connect personal laptops to the client’s system and then download

client’s data into their laptops for further processing. It is capable of working on large

data set that makes testing at hundred-percent coverage possible. Moreover, it provides

a comprehensive audit trail by allowing auditors to view their files, steps and results at

any time. The popularity of the ACL is resulted from its convenience, its flexibility and

its reliability. Table 3.1 illustrates the features of ACL and how are they used in each

step of audit process.

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Audit Processes ACL Features

Planning

- Risk assessment

- “Statistics” menu

- “Evaluation” menu

Execution and Documentation

Tests of Controls

- Sample selection

- Controls Testing

- Results evaluation

Analytical Review

- Expectations development

- Expected versus actual figures

comparison

- Results evaluation

- “Sampling” menu with the ability to

specify sampling size and selection

criteria

- “Filter” menu

- “Analyze” menu including Count,

Total, Statistics, Age, Duplicate,

Verify and Search

- Expression builder

- Evaluation menu

- “Statistics” menu

- “Merge” command

- “Analyze” menu including Statistics,

Age, Verify and Search

- Expression builder

- Evaluation menu

Table 3.1: ACL features used in assisting each step of audit processes

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Audit Processes ACL Features

Detailed Tests

- Sample selection

- Sample testing

- Results evaluation

Documentation

- “Sampling” menu with the ability to

specify sampling size and selection

criteria

- “Filter” menu

- “Analyze” menu including Count,

Total, Statistics, Age, Duplicate,

Verify and Search

- Expression builder

- Evaluation menu

- Document note

- Automatic command log

- File history

Completion

- Lesson learned record

- “Document Notes” menu

- “Reports” menu

Other Possibilities

- Fraud detection

- “Analyze” menu including Count,

Total, Statistics, Age, Duplicate,

Verify and Search

- Expression builder

- “Filter” menu

Table 3.1: ACL features used in assisting each step of audit processes (Continued)

With ACL’s capacity and speed, auditors can shorten the audit cycle with more

thorough investigation. There are three beneficial features that make ACL a promising

tool for auditors. First, the interactive capability allows auditors to test, investigate,

analyze and get the results at the appropriate time. Second, the audit trail capability

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records history of the files, commands used by auditors and the results of such

commands. This includes command log files that are, in a way, considered as record of

work done. Finally, the reporting capability produces various kinds of report including

both predefined and customized ones.

However, there are some shortcomings. The most critical one is that, like other

GAS, it is not able to deal with files that have complex data structure. Although ACL’s

Open Data Base Connectivity (ODBC) interface is introduced to reduce this problem,

some intricate files still require flattening. Thus, it presents control and security

problems.

3.4. Other Computerized Tools and Techniques

As mentioned above, there are many other computerized tools other than audit

software that are capable of assisting some part of the audit processes. Those tools

include the following:

- Planning tools: project management software, personal information

manager, and audit best practice database, etc.

- Analysis tools: database management software, and artificial intelligence.

- Calculation tools: spreadsheet software, database management software,

and automated working paper software, etc.

- Sample selection tools: spreadsheet software.

- Data manipulation tools: database management software.

- Documents preparation tools: word processing software and automated

working paper software.

In stead of using these tools as a substitution of GAS, auditors can incorporate

some of these tools with GAS to improve the efficiency of the audit process. Planning

tools is a good example.

Together with the computerized tools, computerized auditing technique that

used to be performed by the EDP auditors has now become part of an auditor’s

repertoire. At least, financial auditors are required to understand what technique to use,

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how to apply those techniques, and how to interpret the result to support their audit

findings.

Such techniques should be employed appropriately to accomplish the audit

objectives. Some examples are as follows:

- Test data: test how the system detect invalid data,

- Integrated test facility: observe how fictitious transactions are processed,

- Parallel simulation: simulate the original transactions and compare the

results,

- System testing: test controls of the client’s accounting system, and

- Continuous auditing: embed audit program into client’s system.

3.5. Summary

In these days, technology impacts the ways auditors perform their work. To

conduct the audit, auditors can no longer rely solely on their traditional auditing

techniques. Instead, they have to combine such knowledge and experience with

technical skills. In short, the boundary between the financial auditor and the

information system auditor has becomes blurred. Therefore, it is important for the

auditors to keep pace with the technological development so that they can decide what

tools and techniques to be used and how to use them effectively.

Computer assisted auditing tools (CAATs) are used to compliment the manual

audit procedures. There are many CAATs available in the market. The challenge to the

auditors is to choose the most appropriate ones for their work. Both the generalized

audit software (GAS), that integrates overall audit functions, and other similar software

are available to support their work. However, GAS packages tend to be more widely

used due to its low cost, high capabilities and high reliability.