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Technology Shaping the Audit Profession

CA Shariq ContractorPartner – Contractor, Nayak & Kishnadwala

Seminar on “Changing Ways, Fraud Detection and Data Mining

Bombay Chartered Accountants’ Society7th November, 2009

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Evolution of Accounting

• From clay tokens to Abacus to Calculators to Computers

• Concept of Double entry in Venice/ Florence

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Industrial Revolution to Technology Revolution

• Industrial Revolution popularized the pyramidical organizational structure

• With Technology Revolution Companies are moving away from thin slicing work into repetitive task oriented jobs

• Work is now organized around processes • Modern database technology makes

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Complex business Structures

• Earlier company policy determined technology usage, today technology determines company policy

• On the backbone of technology business structures are getting more complex

• Complex business structures, voluminous transactions, disperse geographical location, decentralization, etc.

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Power of Technology

• Power to disintegrate market imperfections

• Power to delegate work downwards• Power to analyze and crunch voluminous

data• Power to generate tailored MIS

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Technology in Professional practice

• Client Service Tools- CAAT, Tax Databases, etc

• Practice Management Tools- Billing and accounting system, Securitysystems, voice recognition, etc.

• Perception Management Tools- Emails, Websites, Social Networks

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Technology has proved the Mighty Wrong

• I think there is maybe world market for five computers. Thomas Watson chairman IBM, 1943.

• There is no reason anyone would want a computer in their home. Hen Olson, President, Chairman and founder of digital equipment Corporation, 1977.

• 640 K. ought to be enough for anybody. Bill Gates 1981.

• Everything that can be invented has been invented. Charles Duell Commissioner US patents 1899.

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Inductive Thinking

• Xerox addressed the need of making 30 copies of a document that nobody thought existed

• Sony transformed rather than responded to the idea of where and how one could listen to music

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XBRL• Language for electronic communication of

business and financial data developed by non profit making International cosortium

• Benefits in preparation, analysis and communication of business information

• Cost savings, greater efficiency, improved accuracy and reliability

• Need to re-key financial data for analytical and other purposes can be eliminated

• Can be used irrespective of language of the country

• Made mandatory in US by 2011 by SEC

Can Audit be made more effective?

• Auditor is a watchdog and not a bloodhound

• Audit is not investigation – Management frauds can never be detected

• Auditors need to pay attention to red flags• Overregulation (like Sarbanes Oxley) is

not the answer

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Thank you