Research Problem: Many studies have been conducted to analyze the determinants for effective application of IT, and examine the tools used by information system auditors in many foreign countries. The use of technology has been adopted in almost all works nowadays, especially with the expanding role of e-commerce in the economy, most auditors are adopting audit software in the audit process. But (i) to what extend have computer assisted audit techniques (CAATs) been adopted by auditors in Mauritius? (ii) given the effective outcome produced by information technology's and public expectation for quality of audit process, why are there still some auditors relying on traditional audit trail in Mauritius?
Purpose of the study: The need for this research crops up due to highly competitive and continuously changing business environment in which the accounting and auditing firms operate, and as such auditors are adopting computer assisted audit techniques (CAATs). The purposes of this study are to get an overall picture of the awareness, attitudes and level of involvement of Mauritian auditors for the adoption of CAATs in the audit process, which software and techniques they use, such that the effectiveness of CAATs in aiding the auditors in the audit process is investigated.
Methods to be used: A total of 200 auditors shall be chosen randomly and the survey shall be carried out by face-to-face interview using a questionnaire. The questionnaire shall be used to assess the factors affecting audit firms to adopt CAATs in their work, what are the benefits as compared to their manual way of working, and to what extend to they believe that CAATs help them in their daily work so as to investigate auditors' behaviour and attitude in a computerized environment. In addition managers shall be interviewed as well so as to know what their views are on and future plan concerning CAATs. Data would be analyzed by using tools like SPSS.
Project outcomes (expectation): The expected outcome shall indicate that both management and employees believe that effective applications of CAATs in the audit process have high potential for enhancing work efficiency and effectiveness, and that in the future years, most auditors will move towards the adaptation of CAATs, shifting from a paper-based audit environment changing the nature of audit process and obtaining evidence electronically in Mauritius.
Benefits of the research: This research will answer the following questions; do auditors' really find the benefits in the use of technologies? Does IT contribute in retaining the public confidence in auditors' work? Or does the use of CAATs enhance the credibility of users' of financial statements? Technology enhances work efficiently, and similarly, auditors can make good, efficient use of it to get the most effective output in terms of their audit judgment. Thus, the benefits of this research will be to increase the awareness of auditors about the various advantages CAATs offer them such that they remain in line with changing environment. Hence the public, especially investors, will have faith in auditors' work, since the use of technology certainly discourages audit failures. Moreover being aware of the benefits of CAATs greatly influences the point of view of other auditors who want to improve their working methods, as well as this research could provide ideas to software developers on how audit software could be improved to better suit for auditing process.
Research proposal
Definition of the research problem
Brief review of the literature relevant to the research problem
The research objectives and their intended benefits
Description of the intended research methodology to be used, including data collection methods.
Tentative "Gantt" chart on how I would complete the different tasks for my research
List of existing references (articles, books, other publications) that I intend to use or access for my project or dissertation.
List of Abbreviations
ACL Audit Control Language
AICPA American Institute of Certified Public Accountants
CAE Chief Audit Executive
IFAC International Federation of Accountants
IDEA Interactive Data Extraction and Analysis
ISA International Standards on Auditing
ISACA Information Systems Audit and Control Association
IT Information Technology
1 Research Proposal
Area : Auditing
Field : Information Technology Audit
Aspect : Auditors' work and Information Technology techniques
Topic : Effectiveness of Computer Assisted Audit Techniques on auditors' work
in enhancing the audit process; as a source of producing a good and
efficient audit opinion - in Mauritius
1.1 Executive Summary
Nowadays the capabilities and opportunities provided by IT have transformed many legitimate business activities, augmenting the speed, ease, and range with which business transactions can be conducted electronically, while also lowering costs. Rapid changes in technology indicate that traditional auditing techniques are obsolete and inefficient in guaranteeing the integrity of an entity's transactions. Auditors' work contributes significantly to the stability of financial markets. Moreover with technology significant changes have been made to cope with the developments in IT and meet the increasing demands of auditors in auditing professions. In this regard, CAATs have been introduced to aid auditors. CAATs audit software allows auditors to complete most procedures on-line; ACL and IDEA software. Because many businesses at present use computers to process their transactions, the auditing profession has been faced with a need to provide increased guidance for audits conducted in an IT environment. Various authoritative bodies, such as the AICPA, the IFAC and the ISACA have issued standards in this area such as ISA 401 "Auditing in a Computer Information Systems Environment"; ISA 1008 "Risk Assessments and Internal Control - Electronic Environment". To the preceding point, this paper seeks to explore auditors' intentions and behaviour towards the usage and adoption of CAATs within their audit engagements. The study investigates the use and adoption of CAATs by auditors in Mauritius, which acts as the key in creating an environment where the public, especially investors, will have faith in auditors' work, since the use of technology certainly discourages audit failures and enhances audit work.
1.2 Research Problem
With the financial crisis stakeholders and regulators, due to their concerns for the audit quality, have criticized the auditing profession. The problem is that there are audit failures such as Enron and WorldCom arising, which make people lose confidence in auditors' work. At the same time, the business world is changing, moving to a computerized dimension. Along this line, auditors' techniques used in carrying out task are changing with this environmental change. The need for this research crops up due to highly competitive and continuously changing business environment in which the accounting and auditing firms operate. IT has been introduced in auditor's work. In Mauritius, auditors use various IT tools to assist them in their audit assignments, whereby these firms have considerable resources to draw upon with regard to the development and implementation of new audit technology. Other auditing firms may not have the resources to acquire or develop technology internally to the same extent as the largest firms. However, scarce literature is available on the perception of the use of technology in the auditing profession in Mauritius. The aim of this study is to provide data viewed from a local perspective by taking into account the Mauritian's auditing firms' culture, as well as institutions, which provides independent auditors with computerized techniques in carrying out their work, so as to produce good audit opinion.
1.3 Literature Review
Prior CAAT Research
The rapid escalation of technology and the use of computers in business practice result in more standards and guidelines to assist auditors in a computerized environment (Winograd et al. 2000; Shumute and Brooks 2001; Pricewaterhouse Coopers 2003). "Most auditors realize that they could - and should - better use the power of the computer, but yet they don't", says S. Williams (December 2012). Prior CAAT research is generally descriptive in nature. A survey by Braun and Davis (2003) regarding the adoption of ACL by governmental auditors shows that auditors perceive the potential benefits associated with ACL. According to Debreceny et al. (2005) internal auditors in Singapore use CAATs for special investigations instead of adopting CAATs in their daily audit work, while external auditors do not use CAATs believing that using IT to test financial statement assertions is inapplicability. According to Diane Janvrin et al (December 2008) the factors influencing auditor acceptance of CAATs are performance expectancy and facilitating conditions such as organizational and technical infrastructure support influence the likelihood that auditors will use CAATs. Previous studies show that IT significantly changes the audit process and plays an important role in determining the effectiveness and efficiency of audit services (Banker, R.D., C. H, and Y. Kao 2002; Janvrin, Dowling, C. and S.A. Leech, 2007; D.J. Bierstaker, and D.J. Lowe, 2008). Protiviti, with its focus of internal audit capabilities and needs survey on technology in the audit process 2012, clearly states that technology is crucial in the audit process from the start to the end. However, research indicates that auditors do not systematically use CAATs (Liang et al. 2001; Kalaba 2002; Debreceny et al. 2005; Shaikh 2005; Curtis and Payne 2008; Janvrin et al. 2009) due to firm resource constraint, size and individual user perceptions.
1.3.1 Auditor
An auditor is a qualified person who carries out the audit assignment and reports on the 'true and fair view' of the client entity's financial statements so that the users of financial statements can rely on the reliability and credibility of the financial statements (Turner, 2001). Financial statements include Income Statements, Statements of Cash Flow, Statement of changes in Equity and Balance Sheets and note s to the account. After examining these financial statements, the auditor expresses an opinion at the end of the audit process, after acquiring sufficient and appropriate audit evidence.
1.3.1.1 Importance of auditor giving an appropriate audit opinion after the audit process
Bakar et al (2005) state that auditor' opinion is fundamental to the public confidence or users of financial statements, which normally are external parities such as shareholders, investors, creditors and financial institutions. Auditors are believed to work on behalf of company shareholders in order to ensure that financial statements are representing "true and fair" view (Cosseratt, 2004). If users lose faith in the audit process due to audit failures this will ultimately undermine the stability of the capital markets. According to Peter Wyman (2004), failure is the result of the auditor misunderstanding of the wider business dimensions or the areas of risk inherent in the business. Thus it is important that auditors derive appropriate and sufficient audit evidence to give an effective audit opinion.
1.3.2 Computer Assisted Audit Techniques (CAATs)
CAATs are computer tools that extract and analyze data from computer applications (Braun, Davis, Harlod, Harold, 2003). CAATs enhance auditors' work efficiently and effectively while saving time and cost in completing an audit assignment (Saygili, 2010), and develop new ways of carrying out their task (Kamesam, 2001). As per literature, CAATs enable auditors to extract and derive more audit evidence during the audit process, as it allows an auditor to scrutinize the entire population (Singleton, 2006).
1.3.2.2 Benefits of CAATs
CAATs increases productivity, completes routine tasks faster (24- 75%) (Abbe and King (1988), Pinsonneault and Rivard (1998), Banker et al., (2002), Zhao et al. (2004), Cahyani Windarto, (2012)), For example, CAATs can automate previously manual audit tests reducing total audit hours expended. They enable auditors to test the whole population rather than a sample, thereby increasing the reliability of conclusions (AICPA, 2001; Curtis and Payne, 2008). According to Arnold and Sutton (1998), Sayana(2003), Curtis and Payne (2008), Janvrin et al., (2009), executing an audit without the aid of CAATs is hardly an option as all information needed for conducting an audit resides within computer systems. CAAT helps auditors to develop new audit techniques to achieve their goals (Dittenhofer, 2001).
1.3.2.4 Generalized Audit Software
Two popular types of audit software are available to the auditors to apply in the audit process (Strand et al, 2005), are ACL and IDEA which provide the means to gain access to and manipulate data and allows for data extraction and analysis such as that allow the auditor to examine a company's data in a variety of formats. They are used to examine the existence, accuracy, completeness, consistency and timeliness of data, the quality of processes embedded within an application system and analytical review to monitor key audit indicators such as trend analysis. In addition, several audit operations such as sampling are supported by the software (Braun and Davis, 2003).
1.3.3 Auditors in a computerized audit process
Use of IT in the audit process is a catalyst for enhancing audit efficiency and audit quality (Stuart et al, (2001), Alan W. Anderson, (2011)). The audit process changes in terms of location, timing, access, procedures and working papers. Manual audit processes cannot function well within this increasingly complex environment (Miklos A. Vasarhelyi, April 1985). "The relationship between IT and audit process identifies significant changes in every phase of audit process as new technological trend emerge" states Bierstaker et al., (2001). However, the overall objectives and scope of an audit do not change when an audit is conducted in a computerized environment.
1.3.3.1 Uses of CAATs
CAATs assist internal auditors in their search for irregularities in data files, to help internal accounting departments with more detailed analysis and to support the forensic accountant with extrapolating large amounts of data for further analysis and fraud detection (James Bourke, 2010). CAATs include fraud detection whereby auditors can identify unexpected patterns in data that may indicate fraud(Strand et al 2005); CAATs also enable auditors to carry out analytical tests by evaluating the plausible relationships among both financial and non-financial data to assess whether account balances appear reasonable (Vuchnich, 2008), examples include ratio and trend; and CAATs allow for continuous monitoring, which is an ongoing process for acquiring, analyzing, and reporting on business data to identify and respond to operational business risks (Bierstaker, Burnaby and Thibodeau, 2001). However, as point out by Vendrzyk and Bagranoff, (2003), "the culture of public accounting may create impediments to the adoption of new technologies by audit teams".
1.3.3.2 Auditors using CAATs worldwide
According to Brozina et al (2004) small firms do not adopt such techniques, implying that larger audit firms are able to improve their audit work efficiencies and effectiveness by using use data extraction and analysis software tools, while smaller firms remain vulnerable to traditional audit process. A survey conducted by Boritz (1989), shows that a lack of necessary computing resources to carry out the CAATs during audit process lead to audit failure. Furthermore, ACL Services reports that a vast majority of auditors perform data analysis techniques, but also that 9% of auditors use automated audit techniques, and that nearly 70% of auditors consider that the "the highest level of desired usage" is continuous monitoring by the business. In United States 83% of auditors use CAATs tools, United Kingdom (5%), Australia (4%), Canada (1%), Switzerland (1%) and other (6%).
Table 1: CAE Results- Three year comparison on adaptation of CAATs
Rank
2012
2011
2010
1
CAATs
Continuous auditing
CAATs
2
Continuous auditing
Data analysis tools-statistical analysis
CAATs
Continuous auditing
3
Data analysis tools- data manipulation
Data analysis tools-sampling
Data analysis tools-statistical analysis
4
Continuous auditing
Data analysis tools- data manipulation
5
Data analysis tools-statistical analysis
Fraud-monitoring
Source: Protivit- internal audit capabilities and needs survey on technology in the audit process
1.3.3.3 Auditing Software Used
Table 2: Countries using ACL and IDEA software
Countries
Name of software
Main function
Belgium, Costa Rica, Guinea, Indonesia, Japan, Malaysia, Oman, Papua New, Poland, Switzerland, South Africa
ACL
Gathering, analysis of data and data extraction, sampling and reporting
Canada, Cyprus, Denmark, Grenada, Hungary, India, Ireland, Korea, Norway, Puerto Rico, Saint Lucia, Sweden, Trinidad & Tobago, U.K., U.S.A, Zimbabwe
IDEA
Data Analysis & Sampling
(Source: http://www.intosaiitaudit.org/directory/topic/Soft2.htm)
Table 3: Audit Software Percentage of Usage
Type of CAATs use by auditors
Percentage of usage (%)
Data Extraction Software
86
Data Analysis Software
94
Fraud Detection and Prevention Software
50
Audit Management Software
78
Risk Management/Analysis Software
96
Continuous Monitoring Software
38
Source: Jackson (2004)
1.3.3.4 Auditors adopting CAATs in Mauritius
Mauritius supreme audit uses IDEA as it meets the expectations of clients who invest heavily in technology and want the auditors to use it; increases efficiency and productivity; gain time by automating manual tasks; performs data analysis effectively; and offers value-added services, such as trends analysis, selection samples from general ledger transactions, accounts receivable outstanding items, inventory items, asset additions and payroll. In 2008 Ernst & Young conducted a research, which shows that 42% of auditors adapt continuous auditing, mainly to identify deficiencies, monitor risks and identify potential fraud activities. The survey also reports that the reasons restricting firms to implement continuous auditing are a lack of skill sets within internal audit, budget constraints and no perceived value in the program. S.Williams (December 2012) reports that auditors prefer to continue auditing through manual methods". This is illustrated by the figures of 63% stating that they would look to employ computer-assisted audit techniques, 55% implementing electronic working papers, 54% implementing a continuous/real-time audit process and 52% looking to focus on data mining over the next five years. Large clients firms like the Accountant General (Treasury), National Pensions Fund, the Central Electricity Board, Central Water Authority, Customs Department, VAT Department, Income department, and in addition there are PWC, Baker Tilly Mauritius, Grant Thornton, KPMG are among those firms which implement CAATs (IDEA), already in Mauritius. The payroll and Treasury accounting of the Government are computerized. As such, auditors deal with soft copies or directly from clients' systems instead of papers. It is believe that in the future years, all audit firms will shift to paperless systems changing the nature of audit process and obtaining evidence electronically.
1.4 Research Objective(s)
1.4.1 Objectives of the research
This assignment has two overall objectives:
This assignment examines the involvement and behavior of auditors in a computerized environment
Examines the impact of IT, that is CAATs in the audit process-whether the use of technology/CAAT effectively act as a source of audit evidence in order to retain public's trust in Mauritius
Specific objectives:
To highlight the importance of auditors' work and how it is fundamental to the public
To highlight the importance of CAATs in auditors' work in today's changing world
To analyse the impacts that CAATs have on audit work
To determine the extent to which Mauritian auditors adopt CAAT in their work.
To the preceding point, the purpose of this paper is to investigate about the adoption of CAATs by auditors within different firms in Mauritius.
1.4.2 Intended benefits of the study
To the best of my knowledge, in Mauritius, no study to investigate auditors' awareness on the benefits that CAATs can bring to their work and the adaptation of the use of IT has been done yet. This study can thus give an idea on how far auditors in Mauritius use CAATs and find it useful than traditional manual paper-based techniques. Through this study, users of the financial statements will be able to get an insight about how efficient and effective computerized tools are used to provide them with an audit opinion which is credible. This will assure them that necessary controls and steps are taken to ensure that audit quality is assured, and hence minimize fraud such that they can rely on auditors' work. Thus, this study will benefit audit firms as it will allow auditors to assess how efficient they can carry out their task with the use of CAAT. This will allow them to bring along other benefits as follows: reduce costs since auditors work in a paperless environment; an increase in their audit client satisfaction with a proper way of keeping their information securely; increased auditors' satisfaction and commitment; better return on investment; and gaining competitive advantage thereby increasing efficiency. The result of the study may thus contribute positively to the adaptation of CAATs by auditors.
1.4.3 Research Hypotheses
From the research objectives, the following is hypothesized:
Ho- The adoption of CAATs enhances auditors' productivity, by meeting the auditor's objectives efficiently and effectively
H1-The adaptation of CAATs does not enhance auditors' productivity, as it cannot assist auditors in all the audit tasks
1.5 Research Methodology
1.5.1 Type of methodology to be used and data collection methods
Research methods can be defined as the source or foundation of knowledge in any given field of research (Dube & Pare, 2003). Both quantitative research and qualitative research will be adopted in the study. Data will be collected from secondary such as articles published by the well-known periodicals, books, and dissertations and primary sources via a questionnaire. Before designing the questionnaire, I shall first of all get a list of all auditing firms in Mauritius, and take a sample of the whole population, since it will be time-consuming and costly to assess all the firms that exist. The methodology to be used in the study will consist of a random sampling among the auditors of audit firms through the administration of questionnaire and at least three interviews with the managers of three accounting firms. The focus of these interviews will be to learn which audit technologies are currently being used, its current impact of technology on the audit process and to investigate their future plans for technological applications for the auditing profession. The research questionnaire will be designed to produce results that are as objective as possible. Close-ended questions included such that to ensure that full quantitative data was collected. Furthermore, these questions will be constructed in the form that will allow the participant to attach few comments to support his/her view on a scale provided of 1-7 where 1 indicate completely disagree and 7 indicating completely agree. Participants will be asked to give views regarding the use of CAATs; that is, how do they understand it, and what are their intentions in adopting these audit techniques. Lastly the participants were asked to rate the maturity and usage of CAATs within their unit in a scale of 1 to 5.
1.5.2 Population or Sampling selection
The research population to serve the purpose of this study shall be comprised of auditors from different audit firms throughout the island.
1.5.3 Sampling plan
As to the sample, taking into consideration the time of the study, cost and resources available of this study, a sample size comprising of around 200 Certified Auditors is decided.
1.5.4 Sampling method
Random sampling will be used. The individual auditors will be randomly selected from both genders and from different regions of the island for the data collection.
1.6 Gantt chart
Below is my tentative "Gantt" chart on how I would complete the different tasks for my research
Column 1
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Selection of accounting firms
Questionnaire design
Pilot testing
Administration of questionnaire
Methodology
Data collection
Data Analysis
Discussion
Finalising dissertation
1.7 Budgeting
The need for making photocopies of the questionnaires for atleast 200 Certified Auditors will cost a lot and to pay for transport cost.
Expenditures
Equivalent cost
Photocopies
Rs 1, 000
Travelling cost
Around Rs 500
1 questionnaire contains around 5 pages.
200 copies of the questionnaire = (5pages x Rs 1 per page) x 200 = Rs 1, 000
Travelling costs will depend on the location of the firms I am going to interview and administer my questionnaires.
