COMPUTER ASSISTED AUDIT

TOOLS
Chap-04

Todays Environment
Internal Auditors are advising organizations on
internal control attributes and ways to gain
assurance from information.
The compliance efforts have led companies to delve
more deeply into their financial statement reporting
elements and into the data that feeds and supports
the financial data.

Todays Environment
Internal Audit groups faced with growing
workloads and heightened accountability
Discovering that Computer Assisted
Auditing Tools (CAATs) offer much needed
help

Audit technology tools facilitate more granular

analysis of data and help to determine the
accuracy of the information

Issues of CAATs
Computer-assisted audit techniques (CAATs) or
computer-assisted audit tools and techniques
(CAATTs) is a growing field within the audit profession.
CAATs is the practice of using computers to automate
the audit processes.
CAATs
normally
includes
using
basic
office
productivity software such as spreadsheet, word
processors and text editing programs and more
advanced software packages involving use statistical
analysis and business intelligence tools.

CAATs- Review 100% of data

Comprehensive approach of testing contrasts
with
traditional
audit
sampling
methods
(extracting small data sets and extrapolating
conclusions about the population of transactions)
Sampling techniques require audit judgment and
confidence levels; whereas CAATs deliver more
definitive results because the entire population of data
can be tested

CAATs- Review 100% of data

Filtering large volumes of data is much more
practical and effective
Work with greater quantities of data
Work with data that is more complex
Ability to identify financial leakage, policy
noncompliance, and mistakes or errors in data
processing

For example: duplicate vendor payments; fraudulent

transactions, circumvention of invoice approval limits

Types of audit programs

Generalized packaged programs: however they
need to be tailored to each specific case by defining the
format of the files to be interrogated by specifying the
parameters required and the form of that output.
Purpose written programs: these are specially
written programs where it is not possible to adapt a
package program because of the type of machine,
processing or file organization used.
Utility programs used by the client: used by the
entity to perform data processing functions such as
sorting and printing of files e.g. excel.

THE
USES
SOFTWARE

OF

AUDIT

Calculation checks: e.g. program gives the

total amount of individual entries in purchases
day book in a particular period. Auditor then
agree this total amount to the amount posted in
purchases ledger control a/c.
Detecting system violation rule: e.g.
program checks that no customer has balance
above specified credit limit.

THE
USES
SOFTWARE

OF

AUDIT

Detecting unreasonable items: programs checks that

no customer has discount of 50% or sales ledger balance
(i.e. debtors balance) is more than the amount of sales
made to that customer.
New calculation and analysis: e.g. statistical analysis
of inventory movements to identify slow moving items.
Selecting items for audit testing: e.g. obtaining a
stratified sample of sales ledger balances to be used as a
basis for a circularization of debtors.
Completeness checks: e.g. checking continuity of
sales invoices to ensure that they are all accounted for.

DIFFICULTIES IN USING AUDIT

SOFTWARE
Over elaboration: tendency to produce over elaborate
enquiry programs which are expensive to develop, time
consuming in processing and reviewing. Hence audit cost
goes up and its difficult to justify its use.
Quantities of output: it may arise that output is too
large either due to poor design of the software or using
inappropriate parameters on a test.
Live database: the audit program need to be run on
the live database (i.e. actual files) of the client because
the auditor is testing the actual system of the client.

DIFFICULTIES IN USING AUDIT

SOFTWARE
Over elaboration: tendency to produce over elaborate
enquiry programs which are expensive to develop, time
consuming in processing and reviewing. Hence audit cost
goes up and its difficult to justify its use.
Quantities of output: it may arise that output is too
large either due to poor design of the software or using
inappropriate parameters on a test.
Live database: the audit program need to be run on
the live database (i.e. actual files) of the client because
the auditor is testing the actual system of the client.

TEST DATA
Audit test data is data submitted by the auditor for processing by
the clients computer based accounting system in order to test the
operation of the enterprises computer programs

There are three main approaches to the use

of test data:
Using live data: process client real live data and then check that
the controls and processing are OK.
Dummy data in a normal production run: however output of
dummy data processing should not be released in the live database
general ledger.
Dummy data in a special run: dummy data is run back up/ image
copy of database.

TEST DATA

Difficulties in using audit test data

Cost: for constructing test data, predetermine
the results manually and ascertaining which
controls to be tested.
Confined to test of control only.
Live testing is dangerous as it may affect
live database is used for special run.
No visible evidence of audit work
performed: need to record in the working

Advantages of CAAT to the

auditor
Test programmed controls: in a computer based
accounting system, there are large volume of
transactions which the auditor will have to audit. The
auditor will have to check if the programmed controls are
functioning correctly. The only effective way of testing
programmed controls is through CAAT.
Test on large volume of data: CAAT enable auditors
to test large amount of data quickly and accurately and
therefore increase the confidence they have in their
opinion.

Advantages of CAAT to the

auditor
Test on source location of data: CAAT enables
auditors to test the accounting systems and its records
(e.g. disk files) at its source location rather than testing
the printouts of what they believe to be a copy of those
records.
Cost effective: once set up CAAT are likely to be cost
effective way of obtaining audit evidence year after year
provided that the client does not change the accounting
system regularly.
Comparison: allows results from using CAAT to be
compared to traditional testing. Where the two results

Tool selection
The challenge

Make sure you are looking at the right tools to

deliver the benefits your company needs
It is the users responsibility to become familiar
with the tools available in order to pick the
right one
Have a solid knowledge of your business, your
data, and the accounting practices in your
industry

Tool selection
The IIA conducted an audit software analysis
and reported several key recommendations
for internal auditors to consider in the
selection of CAATs:
1. Determine the enterprises audit mission,
objectives and priorities
2. Determine the types and scope of audits
3. Consider the enterprises technology environment
4. Be aware of the risks

1. Determine the enterprises

audit mission, objectives and
priorities
Auditors must consult with management regarding
what audit functions are of the highest priority and
where computer audit tools may be applied to help
meet those priorities.

2. Determine the types and scope

of audits

What is the stated objective of the audits?

What kinds of questions will auditors be asking
and what will be the boundaries?
Arriving at answers to these questions will be
critical in making an appropriate software
decision.

3. Consider the enterprises

technology environment

Any audit tools selected will have to mesh with

the other software, hardware and network
systems already in place.
In some cases, the existing IT infrastructure may
incorporate tools that auditors can use in
concert with automated software tools for
improved effect.

4. Be aware of the risks

Applying software to any mission-critical

function carries some risks, and auditing
software is no different.
Automated software tools can prompt auditors
to jump to faulty conclusions or make
assumptions that run counter to enterprise
operations.

Tool Selection
Consider:

How many data sources you have

Volume of transactions

Characteristics to look for in CAATs:

Ease of use
Ease of data extraction
Ability to access a wide variety of data files from different platforms
Ability to integrate data with different format
Ability to define fields and select from standard formats
Menu-driven functionality for processing analysis commands
Simplified query building and adjustments
Logging features

Audit data analysis

techniques
Execute tests for virtually all industries and almost all
types of data:

Accounts Receivable
Payroll
Cash Disbursements
Purchasing
Sales
General Ledger
Work in Progress
Loss Prevention
Asset Management

Limiting factors:

Access to data
Understanding of the data fields
Creativity of the auditor

ACL

(Generalized Audit Software)

Data is locked down as read-only

No chance of inadvertently changing the data
Much higher risk when using spreadsheets

Commands are auditor-friendly

Fairly easy to grasp what the commands will
do once explained
Reasonably short learning curve

ACL
Automatically records all of the commands
that are run and the results of the
procedures in its log
LOG feature enables automation of workpapers
Export the log to a word processor or other file
type

ACL
Batch feature (Writing Scripts)
Develop audit procedures to run in ACL
Auditor puts together the various routines in a batch
(similar to a macro)
Next time the auditor can run one command (push a
button), and all of those procedures will run on
autopilot with ACL dumping the results into the log
Become much more efficient over time by running
same tests periodically, adding new procedures to
the batch

Additional Keys to Success

Identify a Champion- person with ability to
motivate, supervise, and generally make sure
the technology is employed and becomes
successful
General Training- for the users of the software
(www.acl.com)
Identify power users- given more specific
training and become leaders of implementing
the chosen software; assist other auditors;
conduct in-house training.

Audit data analysis

techniques
CAATs especially valuable in environments
that have:

High volumes of transactions

Complex processes
Distributed operations
Unrelated applications and systems

Advantage to Management
Management can use such information to
proactively identify exceptions to controls
and compliance policies and take immediate
action.
Implementing these programs can lead to
increased confidence in the corporate data
underlying financial reporting.

THE END