What is the advantage of using computers in audit techniques?

Computer and Information Technology have revolutionized every industry and field of life. The corporate world is no different as IT and computer is a necessity to keep hold of information, process large sets of data, and make decisions based on the information.

It’s because of the capability of computers and technology to process the bulk of content in minutes and convert it into meaningful information.

The computer and IT involvement is not limited to corporate decision-making; the financial systems of the corporate world are the ones with the most involvement in information technology.

From keeping the financial data on computer systems to finding results to making decisions and evaluating the financial data, computers and IT are everywhere.

Computer Assisted Audit Techniques are also a result of the involvement of IT in financial aspects of the business. Therefore, we will talk about Computer Assisted Audit techniques, how to use them, and their advantages and disadvantages.

So let’s get into it.

Computer Assisted Audit Techniques can be defined as the tools used by auditors during their work when dealing with the bulk of data.

Let’s look at the literal definition of Computer Assisted Audit Techniques.

CAATs are the auditing methods involving computer software tools for analyzing business data and reporting to enhance the audit scope and transparency.

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Auditors can look into different aspects of the audit engagement with the help of these tools. For instance, the trends or anomalies can be easily highlighted with the application of CAATs on the data sets.

In other words, it will be appropriate to say that CAATs include the use of technology in auditing.

Unlike common perception, computer-assisted are not only for large audits. Instead, these techniques can be effective and beneficial for audits at any scale.

CAATs can be applied to internal as well as external audits. Besides,  CAATs can also be employed in any sub-field of auditing.

For instance, the scope of a forensic audit with complex analysis can be widened with the help of CAATs. Auditors who spend most of the time in data analysis can focus on more important aspects of an audit, like verification.

Types of Computer-Assisted Audit Techniques

Computer-assisted audit techniques have four types: test data, audit software, Integrated Test Facilities, and Embedded Audit Software.

When it comes to what is included in the Computer Assisted Audit Techniques or different types of CAATs, two types are also two parts of the process.

Besides, the other two types are less acknowledged and used in audits. We will discuss the constituent types and the other two that are not commonly used in audit procedures.

Test Data

Test Data is the first technique or type of CAAT that involves testing a client’s system. The auditors use dummy information sets and enter them into the client’s system.

The dummy testing is executed in a controlled setting to keep other areas of an audit unaffected.

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The purpose of test data is to get insights into the internal controls procedure in information technology systems of a business.

If we talk about what makes a successful test data, it has to include mixed data(the one with errors and the one without errors). Errors in the data can be of the following types:

1. Codes like customer, supplier, employee, etc., are missing from the data
2. Include transactions that exceed pre-determined rates. For instance, salaries above contracted amounts, more credit sales than agreed-upon limits, etc.
3. Arithmetical errors of overstating, understating, etc., in invoices.
4. Data submission with incorrect batch control totals.

It’s the choice of auditors to run the test data during the normal operational cycle or at a specific point outside the normal operational cycle.

The downside of live test data is that it can interrupt the system and affect master files. On the other hand, the dead testing doesn’t show the strains a system might encounter during normal operations.

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Audit Software

Audit Software is the second aspect of computer-assisted audit techniques. It includes the use of software for data processing and analysis of large data sets.

Without CAATs, the auditors were supposed to manually perform the data analysis on large groups. It would easily eat up most of the time and increase the probability of errors.

The purpose of audit software is an interrogation of the client’s system. It looks into the discrepancies and analyzes different patterns visible in the system.

Audit software not only saves the auditors from inefficient manual work but also gives more accurate results that can be investigated in detail.

Audit software can be off-the-shelf, packaged, or customized for the specific client’s system.

The procedures that can be performed with audit software include:

• Calculation of ratios and selection of indicators failing to meet pre-defined benchmarks
• Extraction of samples based on benchmarks like categorizing transactions over a certain limit, below a certain limit, relating to certain dates, etc.
• Stratifying data based on variables like ages, customers, etc.
• Preparation of financial reports like budget, comparison of the budget with actual figures, etc.,
• Trace transactions through the computerized system.

The next two types we are going to discuss are less common and used for large audits In general. These techniques are costly as well as sophisticated and only be performed by large accountancy firms with abundant resources.

Integrated Test Facilities

Integrated Test Facilities are like Test Data, including preparing fake ledgers for recording different data sets. As a result, the effectiveness of test data procedures can be enhanced, and even live test data has fewer chances of interrupting the system.

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Embedded Audit Software

Embedded Audit software is related to the basic technique of audit software where customized written software is used for a client’s system.

The program is custom designed for performing certain tasks. The embedded audit software can be turned on or off according to the auditor’s need for data collection. It’s what differentiates audit software and embedded audit software.

Advantages of CAATs

The benefits of using CAATs in audit programs are as follows:

1. The auditors can process the voluminous data, analyze a system’s internal controls, and report precisely & rapidly.
2. The common computer-assisted techniques like test data and audit software are also cost-effective and time-efficient.
3. The reliability of the client’s software can be tested.
4. The tasks that auditors would spend hours on can be done with computers in less time. as a result, the auditors can focus on more important aspects. Besides, it also decreases the human level of error.
5. Data analysis is done independently without dependence on the client.
6. The comparison of human-intensive and computer-intensive approaches shows that human-intensive approaches are more costly in the audit. The large data sets have to be sorted, verified, analyzed, and reported by an audit team. This expensive approach frees up the expensive human capital to focus on the opinion and judgment side of the audit.

Disadvantages of CAATs

There are certain shortcomings or disadvantages of CAATs as well. The most common downsides include:

1. The first time setting up the automated audit system is a cost-intensive and time-intensive venture for the auditor and clients.Advertisements
2. Knowledge of IT and computers is necessary for the audit staff working on CAATs. Therefore, it requires training of the staff about the application of IT whenever needed.
3. As mentioned earlier, live test data can interrupt the normal operational cycle. The interruption can be controlled with an integrated test facility, but this sophisticated procedure is very costly.
4. The whole system must be revamped whenever a new technology is introduced, which is yet another costly procedure.
5. Customizing the audit system with the procedures and system of the client also requires resources and time.
6. Designing computer-assisted audit techniques for effective testing and reporting without system documentation is difficult.

Conclusion

Computer Assisted Techniques are indeed a breakthrough in the field of audit. These techniques enhance and make the audit process more streamlined, time efficient, and accurate.

We have discussed different types of CAATs as well as the explanation of each technique along with the advantages and disadvantages of CAATs.

Based on the assessment, you can decide if CAATs fit in your system and will result in better audit engagement or not.