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Feasibility study of computer-based auditing : an empirical approach Wu, Peter King Sai 1973

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CI FEASIBILITY STUDY OF COMPUTER-BASED AUDITING : AN EMPIRICAL APPROACH  by  PETER KING SAI WU B.Comm., M c G i l l U n i v e r s i t y ,  1971  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS  ADMINISTRATION  i n the Department of Accounting  We accept t h i s t h e s i s as conforming required  to the  standard  THE UNIVERSITY OF BRITISH COLUMBIA September, 1973  In p r e s e n t i n g  t h i s t h e s i s in p a r t i a l  f u l f i l m e n t o f the r e q u i r e m e n t s f o r  an advanced degree at the U n i v e r s i t y o f B r i t i s h Columbia, I agree the L i b r a r y s h a l l make i t f r e e l y  that  a v a i l a b l e f o r r e f e r e n c e and study.  I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e  copying o f t h i s  thesis  f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s .  I t i s u n d e r s t o o d that c o p y i n g o r p u b l i c a t i o n  of this  thesis f o r financial  written  permission.  Department o f  shall  Commerce & B u s i n e s s  The U n i v e r s i t y o f B r i t i s h Vancouver 8, Canada  Date  gain  Se-ptember 30,  Columbia  1973.  not be a l l o w e d w i t h o u t my  Administration  ii ABSTRACT The  changing  a c c o u n t i n g environment and t h e  i n n o v a t i o n o f computer t e c h n o l o g y have a l t e r e d a u d i t techniques.  C u r r e n t l y , more t h a n t h i r t y packages a r e  u s e d by a u d i t o r s .  I n view of the s i m i l a r i t i e s , the  " A u d i t Command Language" (ACL), aimed a t combining and e x t e n d i n g t h e f e a t u r e s o f p r e s e n t packages, was  developed.  The M.B.A. t h e s i s r e s e a r c h p r e s e n t e d h e r e " f o c u s e s  on a  f e a s i b i l i t y s t u d y o f a u d i t i n g w i t h a u d i t package systems and on t h e i m p l i c a t i o n s f o r ACL.  An e m p i r i c a l a p p r o a c h  was u s e d and s e t s o f q u e s t i o n n a i r e s were d i s t r i b u t e d t o t h r e e hundred and one f i r m s o f v a r i o u s s i z e s and i n d u s t r i e s throughout The  Canada and t h e U n i t e d S t a t e s o f A m e r i c a . t h e s i s presents a d i s c u s s i o n of the costs  t h a t s h o u l d he c o n s i d e r e d and t h e b e n e f i t s t h a t c o u l d be g a i n e d from t h e use o f a u d i t packages ( A P ' s ) . b e n e f i t s a r e d i s c u s s e d as w e l l .  Other  I t c a n be c o n c l u d e d  from  the s t u d y t h a t t h e r e a r e many advantages i n t h e a d o p t i o n o f t h e systems.  AP's a r e more e f f i c i e n t than  t e c h n i q u e s i n a u d i t i n g EDP r e c o r d s .  other  I t i s d e s i r a b l e and  f e a s i b l e t o d e v e l o p ACL p r o v i d e d t h a t the' a c t u a l c o s t o f d e v e l o p i n g and i m p l e m e n t i n g b e n e f i t s and r e t u r n s . determined  i t does n o t exceed t h e e x p e c t e d  The optimum c o s t o f ACL cannot be  h e r e because t h e average c o s t o f d e v e l o p i n g a  s i m i l a r package cannot be d e t e r m i n e d to i n s u f f i c i e n t  data.  from t h i s s t u d y due  iii F i n a l l y , some p r a c t i c a l problems may be e n c o u n t e r e d . N o n e t h e l e s s , t h e s e a r e s o l v a b l e i n one way o r a n o t h e r . conclusion,  i t s h o u l d be f e a s i b l e t o d e v e l o p ACL as t h e  p r o f e s s i o n a l a u d i t command language  of the f u t u r e .  In  LIST OP CONTENTS Page ABSTRACT  i i  TABLE OF CONTENTS  iv  LIST OE TABLES  v i i  LIST OE FIGURES  ix  ACKNOWLEDGEMENT  x  Chapter I.  INTRODUCTION  1  AUDITING  1  Evolution of Auditing  2  A u d i t i n g EDP R e c o r d s  4  C u r r e n t Trends: A c c o u n t i n g - A u d i t i n g Relationships  8  NEED EOR EMPIRICAL RESEARCH Purpose  8  Scope & Sample  12  Returns  14  Motivation  15  SUMMARY II.  8  15  GENERALIZED COMPUTERIZED AUDIT PACKAGES AUDIT PACKAGES  16 16  P r e s e n t Packages  17  Components  17  Functions  22 iv  V  Chapter  Page SUMMARY  III.  COST-BENEFIT ANALYSIS  26  COSTS  26  D i r e c t Costs  26  I n d i r e c t Costs  28  Summary  29 29  F u t u r e Cost R e d u c t i o n  29  Higher E f f i c i e n c y  30  Reliability  34  Ease I n I n p u t  34  Effective Reporting  35  Improved Human R e l a t i o n s  35  SUMMARY  V.  26  INTRODUCTION  BENEFITS  IV.  23  ANALYSIS - CONTINUED  37 39  INTRODUCTION  39  AUDIT STANDARDS  39  FEES (COSTS CHARGED)  46  AUDIT TASKS  47  EFFECT OF AP'S ON AUDITORS  51  EFFECT ON EMPLOYMENT  51  SUMMARY  53  FEASIBILITY, DESIRABILITY AND JUSTIFIABILITY OF AN AUDIT COMMAND LANGUAGE (ACL) IS IT WORTHWHILE TO DEVELOP AN AP ?  57 57  vi Chapter  VI.  VII.  Page AUDIT COMMAND LANGUAGE ?  61  DESIRABILITY  63  JUSTIFIABILITY  63  FEASIBILITY (PRACTICABILITY)  66  AUDIT COMMAND LANGUAGE  68  INTRODUCTION  68  INPUT COMMAND  68  FEATURES  70  TIME OE DEVELOPMENT AND IMPLEMENTATION ....  74  VARIOUS PACKAGES  74  SUMMARY  76  BIBLIOGRAPHY  79  APPENDIXES  82  A.  L i s t of P a r t i c i p a t i n g Firms  82  B.  Questionnaire  86  vii  LIST OP TABLES Table I. II. III.  IV.  V. VI. VII. VIII. IX.  X. XI. XII.  XIII.  XIV.  XV. XVI.  Page STATED AUDIT OBJECTIVES AND EXTENT OE VERIFICATION UP TO 1960  5  AN. AVERAGE PERCENTAGE OE COMPUTERIZED ACCOUNTING SUBSYSTEMS  9  SUMMARIZATION OE RESPONSES TO THE COMPUTERIZATION OE ACCOUNTING SUBSYSTEMS IN THE NEXT 2 TO 5 YEARS  10  SUMMARIZATION OF RESPONSES TO THE AUDIT BY COMPUTERIZED AUDIT PACKAGES  11  BREAKDOWN OE FIRMS BY INDUSTRIES  13  LIST OF AVAILABLE AUDIT PACKAGES  18  THE MOST COMMON ROUTINES OE AUDIT PACKAGES. SUMMARY OF THE RESPONSES TO THE PERCENTAGE OE TIME SAVED BY AUDITING WITH AN AP  23 31  RESPONSES OE VARIOUS TYPES OE FIRMS TO THE COMPARISON OF EFFICIENCY OF. VARIOUS AUDIT TECHNIQUES  33  RESPONSES TO MEET VARIOUS AUDIT STANDARDS .  44  SUMMARY OE FIRMS RESPONDING TO THE REQUIREMENT OF NEW STANDARDS  45  STATISTICS OF RESPONSES TO THE ALLOCATION . OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT ( I N PERCENTAGES)  48  STATISTICS OF RESPONSES TO THE ALLOCATION OF VARIOUS AUDIT TASKS WHEN USING THE PACKAGE AUDIT ( I N PERCENTAGE)  49  STATISTICS OE DIFFERENCES BETWEEN THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT AND PACKAGE AUDIT (IN PERCENTAGES)  50  STATISTICS OF RESPONSES TO THE EFFECT OP AUDIT PACKAGES ON AUDITORS  52  EFFECT OP AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OE AN AUDIT TEAM  55  viii Table XVII. XVIII.' XIX. XX.  XXI.  XXII. XXIII.  XXIV.  Page EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OF THE WHOLE FIRM  56  RESPONSES OF FIRMS TO THE WORTHINESS OF DEVELOPING THEIR OWN AUDIT PACKAGES  58  RESPONSES TO THE WORTHINESS OF DEVELOPING THEIR OWN PACKAGES (BY SIZE)  58  RESPONSES TO THE DESIRABILITY AND J U S T I F I A B I L I T Y OF THE DEVELOPMENT OF AN AUDIT COMMAND LANGUAGE (BY POSSESSION OF AN AP)  62  RESPONSES TO THE DESIRABILITY AND J U S T I F I A B I L I T Y OF THE DEVELOPMENT OF AN AUDIT COMMAND LANGUAGE (BY SIZE OF FIRMS)  62  SUMMARY OF RESPONSES TO PREFERENCE TO VARIOUS INPUT COMMAND LANGUAGES  70  ROUTINES OF AUDIT PACKAGES THAT ARE CONSIDERED TO BE ESSENTIAL IN THE NEAR FUTURE  71  SUMMARY OF RESPONSES TO THE TIME OF DEVELOPMENT AND IMPLEMENTATION  75  ix LIST FIGURES Figure  Page  1.  TWO TECHNIQUES IN AUDITING EDP RECORDS  2.  A SIMPLIFIED DIAGRAM OF THE GENERAL PROCEDURE OF A COMPUTERIZED AUDIT PACKAGE  7 21  x  ACKNOWLEDGEMENT The w r i t e r would l i k e t o acknowledge t h e c o o p e r a t i o n o f t h e p a r t i c i p a t i n g f i r m s (see Appendix A) w h i c h made t h i s s t u d y f e a s i b l e .  The w r i t e r i s a l s o  d e e p l y i n d e b t e d t o t h e i r s u g g e s t i o n s and comments.  The  e x p e r t a d v i c e from Dr. M. Ace o f t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , i n t h e d e s i g n o f t h e q u e s t i o n n a i r e , ' and the a d d i t i o n a l a s s i s t a n c e o f Dr. H. J . W i l l o f t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a and c h a i r m a n o f t h i s committee, a r e g r a t e f u l l y acknowledged.  thesis  F i n a l l y , the  w r i t e r i s g r e a t l y o b l i g e d t o A r t h u r Andersen & Co. f o r i t s A r t h u r Andersen G r a n t w h i c h p r o v i d e d f u n d s f o r t h e p r i n t i n g and m a i l i n g c o s t s a s s o c i a t e d w i t h t h e p r o j e c t .  CHAPTER I INTRODUCTION This chapter gives a b r i e f i n t r o d u c t i o n to a u d i t i n g , i n c l u d i n g i t s e v o l u t i o n and r e l a t i o n w i t h computers, and the c u r r e n t t r e n d s o f a c c o u n t i n g - a u d i t i n g r e l a t i o n s .  The  purpose and scope o f t h i s e m p i r i c a l r e s e a r c h w i l l be o u t l i n e d as w e l l . C h a p t e r I I b r i e f l y d e s c r i b e s a u d i t packages The  a n a l y s i s of the c o l l e c t e d data, together w i t h  concerning i n chapters  the v a r i o u s aspects I I I and I V .  desirability,  (AP's).  conclusions  o f t h e packages i s d i s c u s s e d  The e f f i c i e n c y , e f f e c t i v e n e s s ,  j u s t i f i a b i l i t y and f e a s i b i l i t y o f an A u d i t  Command Language (ACL) i s p r e s e n t e d  i n c h a p t e r V, w h i l e  c h p a t e r V I summarizes t h e f e a t u r e s t h a t s h o u l d be i n c l u d e d i n f u t u r e developments and c h a p t e r V I I i s a summary c h a p t e r . AUDITING The word AUDIT o r i g i n a t e s from t h e L a t i n word a u d i t u s meaning "a f o r m a l o r o f f i c i a l e x a m i n a t i o n  and  i  v e r i f i c a t i o n o f books o f a c c o u n t s . . . "  .  The term has  f u r t h e r been e x t e n d e d t o i n c l u d e t h e " e x a m i n a t i o n  o f any  P h i l i p Babcock Gove ( e d - i n - c h i e f ) , Webster's T h i r d New I n t e r n a t i o n a l D i c t i o n a r y o f t h e E n g l i s h Language, U n a b r i d g e d ( S p r i n g f i e l d , M a s s a c h u s e t t s : G & C, M e r i r a m Co. P u b l i s h e r s , 1965). 1  2 records  t o a s c e r t a i n whether t h e y c o r r e c t l y r e c o r d  f a c t s ...  the  e x t e n d s the usage t o s t a t e m e n t s p r e p a r e d 2  summaries of r e c o r d s  ..."  .  Nowadays, a u d i t i n g  become " a b r a n c h of a c c o u n t i n g  that deals with  as has  the  e x a m i n a t i o n and v e r i f i c a t i o n of a c c o u n t s or books of a c c o u n t s and w i t h making the f i n a n c i a l r e p o r t s " The  law,  as s t a t e d i n the  1965  .  Canada "Companies  A c t and Amending A c t " , r e q u i r e s the performance of a u d i t s . As r e p r e s e n t a t i v e s and  of the s h a r e h o l d e r s ,  auditors  examine the books i n o r d e r t o e x p r e s s an  inspect  objective  judgement and u n b i a s e d o p i n i o n on the f i n a n c i a l p o s i t i o n of the c o r p o r a t i o n ^.  Other t h a n l e g a l r e q u i r e m e n t s ,  v a r i o u s Canadian S t o c k Exchanges and  the P r o v i n c i a l  S e c u r i t i e s Commissions r e q u i r e a u d i t e d f i n a n c i a l f o r l i s t i n g purposes. c r e d i t o r s and  Chartered  the  banks, c o u n t r y  statements banks,  p o t e n t i a l i n v e s t o r s are a l s o i n t e r e s t e d i n  s t a t e m e n t s t h a t are r e v i e w e d and  s c r u t i n i z e d by  a  professional auditor. E v o l u t i o n of A u d i t i n g A u d i t i n g i s a b y - p r o d u c t of a c c o u n t i n g .  The  first  Committee on T e r m i n o l o g y , A c c o u n t i n g T e r m i n o l o g y B u l l e t i n s , No. ,1., Review and Resume, A m e r i c a n I n s t i t u t e of A c c o u n t a n t s (Madison Ave., N.Y., TE, N.Y.). 3 „ Gove, op. c i t . ^ See  Section  124  of Canada C o r p o r a t i o n s  Act.  3 appearance  o f a u d i t i n g can be d a t e d back t o 3600  5  B.C.  when the e a r l i e s t r e f e r e n c e t o r e c o r d - k e e p i n g was found as w e l l ^.  A c c o u n t i n g can be t r a c e d back t o the time o f 7  a n c i e n t B a b y l o n i a and Eygpt the  H s i a d y n a s t y (2260 B.C.  and as f a r back as Yu o f - 1766 B.C.)  of C h i n a . 8  By  t h a t t i m e , the l i m i t e d amount o f t r a n s a c t i o n s and the means of r e c o r d i n g made d e t a i l e d e x a m i n a t i o n o f a c c o u n t s f e a s i b l e . A f t e r the t h i r t e e n t h c e n t u r y , when the d o u b l e - e n t r y book9 k e e p i n g system o r i g i n a t e d ,  the a c c o u n t i n g t e c h n i q u e  g r a d u a l l y d e v e l o p e d o v e r time t o meet the equipment and machines. by a s e r i e s o f economic  contemporary  These changes were a l s o  caused  e v e n t s such as the appearance  of  c o r p o r a t i o n s , the I n d u s t r i a l R e v o l u t i o n , the growth i n t r a d e and i n d u s t r y and t e c h n o l o g i c a l  changes.  C o n c u r r e n t l y , a u d i t i n g underwent a s e r i e s of changes b o t h i n the s t a t e d o b j e c t i v e and the e x t e n t o f W i l l i a r d E. Stone, " A n t e c e d e n t s o f the A c c o u n t i n g P r o f e s s i o n , " The A c c o u n t i n g Review, V o l . XLIV, No." 2 (1969; p. 284. 6  Stone, i b i d . , p.  284.  7  Stone, i b i d . , p.  284.  o  P h i l i p Eu, "Governmental A c c o u n t i n g i n C h i n a D u r i n g the Chou D y n a s t y (1122 B.C. - 256 B.C.)," J o u r n a l of A c c o u n t i n g R e s e a r c h , 9, No. 1 ( S p r i n g 1971), p. 40. ^ A. C. L i t t l e t o n and B. S. Yamey ( e d ) , S t u d i e s i n the H i s t o r y o f A c c o u n t i n g (Homewood, I l l i n o i s : R i c h a r d D. I r w i n , I n c . , 1965), p . ' l .  4 verification.  Brown  10  made a s t u d y on t h e s e g r a d u a l  changes up t o m i d - s i x t i e s o f the t w e n t i e t h c e n t u r y . r e s u l t i s presented i n table I.  The  His  e a r l i e s t audits, long  b e f o r e the s i x t e e n t h c e n t u r y , were aimed a t p r e v e n t i o n and d e t e c t i o n o f f r a u d w i t h p a r t i a l emphasis on i n t e r n a l  control.  R u l e s were not s e t by governments on the n e c e s s i t y o f attesting.  Criteria,  established. follow.  s t a n d a r d s and p r o c e d u r e s were not  There were no d e f i n i t e r u l e s o r s t e p s t o  I t was  n o t u n t i l the second  day o f November  1862  t h a t the f i r s t E n g l i s h Companies A c t came i n t o e f f e c t .  As  more and more d a i l y t r a n s a c t i o n s were i n v o l v e d , a u d i t o r s began t o r e a l i z e i n the e a r l y t w e n t i e t h c e n t u r y t h a t c e r t a i n t e c h n i q u e s such as t e s t i n g and emphasis on the r e v i e w o f i n t e r n a l c o n t r o l have t o be A f t e r World War c a p a c i t y was hardware.  employed.  I I , the human d a t a p r o c e s s i n g  f u r t h e r extended  by the i n v e n t i o n of computer  I n t e g r a t e d a c c o u n t i n g systems a r e r e p l a c i n g the  t r a d i t i o n a l manual d o u b l e - e n t r y system.  Auditing i s  t h e r e f o r e c o m p l i c a t e d by the development o f E l e c t r o n i c D a t a P r o c e s s i n g (EDP)  and c o m p u t e r i z e d  Management  I n f o r m a t i o n Systems ( M I S ' s ) . A u d i t i n g EDP  Records  The use  of EDP  i n a c c o u n t i n g caused  the development  R. Gene Brown, "Changing A u d i t O b j e c t i v e s and T e c h n i q u e s , " The A c c o u n t i n g Review, V o l . XXXVII, No. 4 ( 1 9 6 2 ) , pp. 696-703.  5 Table I  1 1  STATED AUDIT OBJECTIVES AND EXTENT OP VERIFICATION UP TO 1960  Importance of I n t e r n a l Control Not  Period  Stated Audit Objectives  Extent of Verification  Before 1500  Detection of fraud  Detailed  1500 to 1850  Detection of fraud  Detailed  1850 to 1905  D e t e c t i o n o f f r a u d and detection of c l e r i c a l error  Some t e s t s , primarily detailed  1905 to 1935  Determination of fairness of reported f i n a n c i a l p o s i t i o n and d e t e c t i o n o f f r a u d and error  Detailed and testing  1933 to 1940  Determination of f a i r n e s s of reported f i n a n c i a l p o s i t i o n and d e t e c t i o n o f f r a u d and error  Testing  Awakening of i n t e r e s t  1940 to 1960  Determination of f a i r n e s s of reported financial position  Testing  Substantial emphasis  Brown, i b i d . , p. 696.  recognised Not recognised Not rS el ci og gh nt i s e d recognition  6  o f a new  a u d i t i n g technique.  The  t r a d i t i o n a l manual  a u d i t i s "becoming i n e f f i c i e n t o r i n c a p a b l e of b e i n g c a r r i e d out by the p r o f e s s i o n .  The r e c o r d s s t o r e d on  m a g n e t i c t a p e s , paper t a p e s or d i s k s can h a r d l y be u n d e r s t o o d and r e a d w i t h o u t the a i d of the computer. p r e s e n t , t h e r e a r e m a i n l y two complementary f o r a u d i t i n g EDP computer", and  At  techniques  r e c o r d s , namely ( 1 ) " a u d i t i n g around the 12  (2) " a u d i t i n g w i t h the computer"  I n " a u d i t i n g around the computer", the a u d i t o r p e r f o r m s the a u d i t w i t h o u t d i r e c t l y employing He a s k s a s s i s t a n c e from programmers o r EDP  the computer.  e x p e r t s i n the  r e t r i e v a l of r e c o r d s , and he m a i n l y works w i t h the r e p o r t s and/or d a t a t h a t are c o m p u t e r - g e n e r a t e d by the c l i e n t his assistants.  or  However, n o t a l l a u d i t o r s depend upon the  programmers o r EDP  e x p e r t s s i n c e some o f them are a b l e t o  do the programming t h e m s e l v e s .  On the o t h e r hand, i n  " a u d i t i n g w i t h the computer", the a u d i t o r works w i t h the computer w h i c h a i d s h i s a u d i t i n g . the s t o r e d d a t a .  He works d i r e c t l y w i t h  Hence, the main d i f f e r e n c e o f the  t e c h n i q u e s l i e s i n the s o u r c e s o f d a t a t o be  two  scrutinized.  Secondary s o u r c e s from the computer are a v a i l a b l e f o r " a u d i t i n g around the computer" w h i l e p r i m a r y s o u r c e s o b t a i n e d and r e v i e w e d  are  i n the o t h e r technique;.  P i g u r e 1 g i v e s a s i m p l i f i e d diagram d e p i c t i n g the Some c l a s s i f y the two t e c h n i q u e s as " a u d i t i n g w i t h o u t the computer" and " a u d i t i n g w i t h the computer".  Computerized Accounting Records  1 Computer  Accounting  Hardware  Data/Reports  1  4  Reports/Financial Statements_  i  J  AUDITOR  ^  1  Users of Accounting Information  Audit  Report  J  (1 ) " A u d i t Around The Computer" fjj? R e t r i e v a l .  [ I Analysis H Programs  1  Computer Hardware  1  Reports/Pinancial Statements  AUDITOR  Users of Accounting Information  Audit  i  (2) " A u d i t W i t h The Computer  1  Report  1  Figure 1 TWO TECHNIQUES I N AUDITING EDP RECORDS  1  8 two  techniques.  C u r r e n t Trends: A c c o u n t i n g - A u d i t i n g R e l a t i o n s h i p s A c c o r d i n g t o the i n f o r m a t i o n c o l l e c t e d i n t h i s s t u d y , the computer has been u t i l i z e d m o s t l y f o r such a c c o u n t i n g subsystems as g e n e r a l l e d g e r s , c a s h and d i s b u r s e m e n t s ) ,  accounts r e c e i v a b l e , s a l e s ,  and i n v o i c i n g , i n v e n t o r y and a c c o u n t s II) .  Furthermore,  (receipts  payable  billing  (see t a b l e  most o f the f i r m s p r e d i c t e d t h a t t h e r e  w o u l d be an i n c r e a s e i n the a p p l i c a t i o n of computer technology  i n accounting.  be c o m p u t e r i z e d  Many o f t h e s e subsystems are t o  i n the n e x t two  t o f i v e y e a r s (see t a b l e  III) . T h i s growth s h o u l d e n l a r g e the a d o p t i o n o f a u d i t packages.  A c c o r d i n g t o the a n a l y s i s , many a u d i t and  i n d u s t r i a l f i r m s f a v o r the a p p l i c a t i o n o f AP's o f t h e s e a c c o u n t i n g subsystems (see t a b l e I V ) . words, t h e r e e x i s t s a need and demand f o r  to most In other  computerized  a u d i t i n g i n the f u t u r e . NEED FOR  EMPIRICAL RESEARCH  Purpose The  i n n o v a t i o n o f computer t e c h n o l o g y and i t s f a s t  development i n terms o f s o f t w a r e and hardware have broadened human c a p a c i t i e s .  Many p e o p l e  are a f f e c t e d .  t r a n s a c t i o n s and r e c o r d i n g s a r e i n f l u e n c e d . i n f o r m a t i o n systems a r e c h a n g i n g  as w e l l .  Business Management  To keep pace  Table I I AN AVERAGE PERCENTAGE OP COMPUTERIZED ACCOUNTING SUBSYSTEMS  A c c o u n t i n g Subsystems General Ledgers Cash ( r e c e i p t s & d i s b u r s e m e n t s ) Accounts R e c e i v a b l e Sales, B i l l i n g & Invoicing Inventory Accounts & C o n t r o l Fixed Assets Depreciation & Amortization R e p a i r s & Maintenance Purchasing P r o d u c t i o n & Cost A l l o c a t i o n Accounts Payable Payroll Pension Plans Loan A c c o u n t s Debentures & Bonds Fund A c c o u n t s C a p i t a l Accounts Share R e g i s t r a t i o n Budgeting & F o r e c a s t i n g Reports & Control Journal Analysis Miscellaneous  Percentages 55.7% 54.4% 63.9% 54.5% 51.8% 48.3% 40.5% 21.9% 24.8% 28.4% 55.8% 86.2% 43.9% 29.8% 20.2% 14.3% 25.3% 27.2% 41.1% 2.4% 2.9% 1.2%  3.6%  The f i g u r e s under t h i s column h e a d i n g a r e t h e numbers o f r e s p o n s e s t o t h e c o r r e s p o n d i n g subsystems e x p r e s s e d as p e r c e n t a g e s o f t h e t o t a l number o f 34 answers by t h e p a r t i c i p a t i n g and r e s p o n d i n g f i r m s .  10 Table I I I SUMMARIZATION OP RESPONSES TO THE COMPUTERIZATION OE ACCOUNTING SUBSYSTEMS IN: THE NEXT 2 TO 5 YEARS  A c c o u n t i n g Subsystems  Percentages  General Ledgers Cash ( r e c e i p t s & d i s b u r s e m e n t s ) Accounts Receivable Sales, B i l l i n g & Invoicing  96.6% 89.8% 84.8%  Inventory Accounts & C o n t r o l Fixed Assets Depreciation & Amortization R e p a i r s & Maintenance Purchasing P r o d u c t i o n & Cost A l l o c a t i o n Accounts Payable Payroll Pension Plans Loan A c c o u n t s Debentures & Bonds Fund A c c o u n t s C a p i t a l Accounts Share R e g i s t r a t i o n Budgeting & F o r e c a s t i n g Deposit Trust Reports & Control Journal Analysis Miscellaneous  79.7% 86.4% 88.1% 83.0% 61 .0% 76.3% 76.3% 84.8% 96.6% 67.8% 61.0% 45.8% 49.2% 52.5%  44i1% 81.4%  -3.4% 1.7% 1.7% 1.7% 1.7% 6.8%  The f i g u r e s under t h i s column h e a d i n g a r e t h e numbers o f r e s p o n s e s t o t h e c o r r e s p o n d i n g subsystems e x p r e s s e d as p e r c e n t a g e s o f the- t o t a l number o f 59 answers by t h e p a r t i c i p a t i n g and r e s p o n d i n g f i r m s .  11 T a b l e IV SUMMARIZATION OF RESPONSES TO THE AUDIT BY COMPUTERIZED AUDIT PACKAGES  A c c o u n t i n g Subsystems  Percentages  General Ledgers Cash ( r e c e i p t s & d i s b u r s e m e n t s ) Accounts Receivable Sales, B i l l i n g & Invoicing Inventory Accounts & C o n t r o l Fixed Assets Depreciation & Amortization  72.9% 77.1% 83.3% 75.0%  R e p a i r s & Maintenance Purchasing P r o d u c t i o n & Cost A l l o c a t i o n Accounts Payable Payroll Pension Plans Loan A c c o u n t s Debentures & Bonds Fund A c c o u n t s C a p i t a l Accounts Share R e g i s t r a t i o n Budgeting & F o r e c a s t i n g Deposit Journal Miscellaneous  45.8%  83.3% 77.1% 70.8% 60.4% 58.3% 83.3% _ 95.8% 58.3% 54.2% . 39.6% 41.7%  43.8% 35.4% 52.1% 2.1% ; 2.1% 10.4%  The f i g u r e s under t h i s column h e a d i n g a r e t h e numbers o f r e s p o n d i n g f i r m s t o t h e c o r r e s p o n d i n g subsystems e x p r e s s e d as p e r c e n t a g e s o f t h e t o t a l number o f 48 answers by t h e p a r t i c i p a t i n g and r e s p o n d i n g f i r m s .  12  w i t h t h i s changing  environment, a u d i t i n g i s , to a c e r t a i n  e x t e n t , m o d i f i e d by the advent o f a u d i t packages. The  i d e a o f Dr. H. J . W i l l o f the U n i v e r s i t y  of  B r i t i s h C o l u m b i a i n d e v e l o p i n g a g e n e r a l i z e d ACL  motivated  me  feasibility  t o r e s e a r c h the e f f e c t i v e n e s s , e f f i c i e n c y and  of computer-based a u d i t i n g w i t h p a r t i a l emphasis on  ACL  itself. Many t i m e s , problems w h i c h a r e e n c o u n t e r e d in  only  p r a c t i c e , would h a r d l y be c o n s i d e r e d i n t h e o r y .  s t u d y the f e a s i b i l i t y , e m p i r i c a l approach. o f those who  one  To  of the b e s t methods i s the  I n t h i s way,  o p i n i o n s and  suggestions  a r e p r a c t i c a l l y - e x p e r i e n c e d i n computer-  b a s e d a u d i t i n g can be  obtained.  Scope & Sample Three hundred and one  s e t s of q u e s t i o n n a i r e s were  d i s t r i b u t e d t o f i r m s a l l over Canada and the U n i t e d S t a t e s of A m e r i c a . o f seminars seminars) The  list  The name l i s t was  o b t a i n e d from p a r t i c i p a n t s  o f "computer-based a u d i t i n g " ( o r s i m i l a r  sponsored  by v a r i o u s i n s t i t u t i o n s and a s s o c i a t i o n s .  i s f a i r l y r e p r e s e n t a t i v e and i n c l u d e s l a r g e and  small accountant  f i r m s (Chartered Accountants,  P u b l i c Accountants  Certified  and C e r t i f i e d G e n e r a l A c c o u n t a n t s )  and  f i r m s o f v a r i o u s s i z e s from o t h e r i n d u s t r i e s , a l l o f w h i c h showed g r e a t i n t e r e s t i n computer-based a u d i t i n g c o n c e p t s and t e c h n i q u e s .  A breakdown o f the f i r m s by v a r i o u s  i n d u s t r i e s i s shown i n t a b l e V.  13 Table V BREAKDOWN FO FIRMS BY INDUSTRIES 16  Industries Bank, t r u s t & f i n a n c e companies Chemical i n d u s t r y Data P r o c e s s i n g Educational Energy General d i v e r s i f i e d industry Governments, g o v e r n mental agencies Health science, hospitals & laboratories Insurance Manufacturing: General Specific Mining & o i l : Ferrous metal Non-ferrous metal Petroleum Transportation & communication Utilities Others ( r e s t a u r a n t s , f i l m & entertainments, e t c . ) TOTAL NON-ACCOUNTING FIRMS Accounting firms TOTAL  Outgoing  Returned  36 9 9 4 9  14 2 6 1 1  21  3  15  8  8 13  1 6  12 _2 14  4 0 4  2 4 9 15  1 2 4 7  7 5  3 4  40  15  205 96 301  75 18 93  F i r m s may b e l o n g t o more t h a n one c l a s s , f o r example, a c h e m i c a l i n d u s t r i a l f i r m may b e l o n g t o a m a n u f a c t u r i n g f i r m , "but i s o n l y c l a s s i f i e d as a c h e m i c a l industrial firm.  14 Returns There were n i n e t y t h r e e r e s p o n d e n t s  of which only  n i n e t y c o u l d he a n a l y s e d because o f l a c k o f d a t a i n the other three r e p l i e s .  The breakdown i n t o  of the n i n e t y three f i r m s i s a l s o presented p r e v i o u s page).  contained industries  i n t a b l e V (on  A l s o , according to the i n f o r m a t i o n provided,  t h e y can be c a t e g o r i z e d i n t o f o u r d i f f e r e n t t y p e s o f f i r m s by t h e i r s i z e s and t h e breakdown i s as f o l l o w s : I n t e r n a t i o n a l Firms N a t i o n a l Firms Regional Firms L o c a l Firms TOTAL  42 ( 46.6%) 18 ( 20.0%) 15 ( 16.7%) 15 ( 16.7%) 90(100.0%)  S e v e r a l q u e s t i o n s were n o t c o m p l e t e l y answered and c o n c l u s i o n s from o r s u m m a r i z a t i o n t h u s be m i s l e a d i n g .  o f t h e s e q u e s t i o n s would  Such q u e s t i o n s w i t h i n s u f f i c i e n t  data  i n c l u d e q u e s t i o n s e i g h t , n i n e , t e n , n i n e t e e n and t w e n t y (see A p p e n d i x B ) .  The f i r s t t h r e e o f t h e above numbered  q u e s t i o n s i n t e n d e d t o show how each i n d u s t r y s t o o d among o t h e r i n d u s t r i e s i n computer-based a c c o u n t i n g systems and how f a r t h e y have been a u d i t e d by v a r i o u s a u d i t i n g t e c h n i q u e s . They v/ere a l s o i n t e n d e d t o c o u n t e r - c h e c k Questions  other questions.  n i n e t e e n and t w e n t y a s k e d t h e f i r m s t o g i v e t h e  number o f t h e i r p e r s o n n e l h a v i n g v a r i o u s q u a l i f i c a t i o n s . Those numbers f u r n i s h e d by f i r m s w i t h AP's were i n t e n d e d t o compare w i t h t h o s e numbers g i v e n by f i r m s w i t h o u t AP's. U n f o r t u n a t e l y , many d i d n o t submit answers o r t h e y gave i n a p p r o p r i a t e answers.  15 .  Motivation D u r i n g the whole p r o c e s s o f d a t a c o l l e c t i o n , a n a l y s i s and the w r i t i n g of t h e r e p o r t ( t h e s i s ) , a l l d a t a were k e p t c o n f i d e n t i a l .  T h i s c o n f i d e n t i a l i t y was  stated  i n the i n t r o d u c t o r y l e t t e r t o the f i r m s t o encourage more participation.  The  q u e s t i o n n a i r e s w i l l be d e s t r o y e d a f t e r  the c o m p l e t i o n o f the t h e s i s . list  For r e f e r e n c e purposes,  o f p a r t i c i p a t i n g f i r m s i s i n c l u d e d i n the  a  appendix  and a summary of r e s u l t s w i l l he d i s t r i b u t e d t o t h o s e i n t e r e s t e d i n them. SUMMARY W i t h t h e g r a d u a l e v o l u t i o n of a c c o u n t i n g a u d i t i n g techniques are changing.  systems,  Computer f a c i l i t i e s  are  u t i l i z e d i n a t t e s t i n g t h e l a r g e amount o f d a t a s t o r e d . a u d i t i n g c o m p u t e r i z e d a c c o u n t i n g r e c o r d s , two  techniques  have been d e v e l o p e d w h i c h depend m a i n l y upon the of  r e c o r d s t o be a u d i t e d .  In  originality  I n " a u d i t i n g w i t h the computer",  the a u d i t o r o r a u d i t team a c t u a l l y uses the computer and l o o k s more c a r e f u l l y i n t o the i n t e r n a l c o n t r o l systems o f t h e c o r p o r a t i o n t h a n i s the case i n " a u d i t i n g around computer".  The  two t e c h n i q u e s do n o t r e p l a c e each  however, and many t i m e s t h e y have t o be concurrently.  performed  the  other  CHAPTER I I GENERALIZED COMPUTERIZED AUDIT PACKAGES There a r e two means t o a c h i e v e " a u d i t i n g w i t h t h e computer":  (1) " s p e c i f i c a u d i t i n g programs" and (2) a u d i t  packages.  I n f a c t , t h e f o r m e r c a n be c o n s i d e r e d a s u b s e t  or component o f t h e l a t t e r .  E v e r y t i m e we w i s h t o r e t r i e v e  and examine d a t a from a s t o r a g e medium, we c o u l d w r i t e a program i n one o f t h e programming  l a n g u a g e s such as FORTRAN,  COBOL o r P L / l t o a c c o m p l i s h t h i s .  The l a r g e r t h e program,  the h i g h e r w i l l be t h e p r o b a b i l i t y i n making m i s t a k e s .  In  o r d e r t o be more e c o n o m i c a l and t o m i n i m i z e e r r o r s , t h e more f r e q u e n t l y e n c o u n t e r e d programs a r e p r e - w r i t t e n , t h u s composing t h e e l e m e n t s o f an a u d i t package. o n l y a s m a l l programming out t h e work o f a l a r g e  I n t h i s way,  effort i s required f o r carrying program.  AUDIT PACKAGES An a u d i t package  (AP) i s a system c o n s i s t i n g o f a  s e t o f g e n e r a l i z e d computer programs f o r r e t r i e v i n g i n f o r m a t i o n from a computer-based a c c o u n t i n g system, w i t h e x t e n d e d a n a l y t i c a l t e s t i n g and r e p o r t i n g c a p a b i l i t i e s . I t c a n be used v / i t h complete independence from t h e c l i e n t ' s programs.  Any d a t a - r e t r i e v a l system u s e d i n a u d i t i n g i s  t h e r e f o r e i n c l u d e d i n t h i s s t u d y as w e l l .  I n f a c t , these  computer program packages a r e t o o l s f o r a s s i s t i n g t h e 16  17 a u d i t o r i n h i s work. the  They are so designed that many of  r o u t i n e a u d i t tasks can he performed q u i c k l y .  Present Packages i  A review of the a u d i t packages hy Mr. Oakley showed that there were e i g h t packages hy 1969 and another f i v e were under development hy that time. In e a r l y 1972, 2 Dr. W i l l l i s t e d f i f t e e n developed and a v a i l a b l e packages. •3  The development i s r a p i d  and, according to the data  c o l l e c t e d , by the end of 1972, there were t h i r t y such retrieval  systems which are l i s t e d i n t a b l e VI.  The l i s t  i s by no means a complete one since some known packages were not i n c l u d e d i n the a n a l y s i s . Components The primary o b j e c t i v e of developing and implementing these packages i s s i m i l a r .  Many of the a u d i t o r s i n the  past were (and even today are) not experts i n programming and they had l i t t l e or no knowledge i n e l e c t r o n i c data p r o c e s s i n g , programming, computer technology and f a c i l i t i e s . A. Oakley, " A n a l y s i s of Packages," Report of Proceedings - Computer Audit Packages: Information R e t r i e v a l & S p e c i a l i z e d Audit Features ( P o r t l a n d P l a c e , London: The B r i t i s h Computer S o c i e t y ) , paper 6, p. 69. 2 H. J . W i l l , "Computer-Based A u d i t i n g - P a r t I I : Comparison of Generalized Computer A u d i t i n g Packages," Canadian Chartered Accountant, March 1972, p. 33. Donald L. Adams and John P. M u l l a r k e y , "A Survey of Audit Software," J o u r n a l of Accountancy, September 1972, pp. 39-65.  18 Table V I LIST OE AVAILABLE AUDIT PACKAGES  Name o f Packages  Developing  Firms  ASK 360  Whinney M u r r a y & Co. and Thompson M c L i n t o c k & Co. (UK)  AUDASSIST  Alexander  AUDEX  A r t h u r A n d e r s e n & Co. (US)  AUDIT  Chase B r a s s & Copper Co.  AUDITALL  Informatics & Leidesdorf  AUDITAPE  H a s k i n s & S e l l s (US, Canada)  AUDITEIND  Dataskil  AUDITPAK  L y b r a n d , Ross B r o s . & Montgomery (US)  AUDITR0NIC-16  Ernst & Ernst  AUDIT-THRU  Computer R e s o u r c e s C o r p o r a t i o n (US)  Grant & Co. (US)  (US)  (US)  AY AUDIT/MANAGEMENT SYSTEM  A r t h u r Young & Co. (US)  BUG  Computer Task Group I n c . (US)  CARS  Computer A u d i t Systems, I n c . (US)  CFA  P r i c e Waterhouse & Co. (US)  DATA-MAN EDP AUDITOR  Culliane Corporation  (US)  EXTRACTO  Aquila Bst L t d .  FILETAB  N a t i o n a l Computer Centre L t d . (US)  FIND  International  Computers (UK)  19  Table V I (continued)  Name o f P a c k a g e s  Developing Pirms  GENERAL RETRIEVAL SYSTEM  Program P r o d u c t s I n c o r p o r a t e d (US)  GRIP  G u l f O i l Canada L t d .  GRS INTERROGATOR MARK IV  Informatics  MIRALL/AUDIT NITA  N a t i o n a l Computer C e n t e r (UK)  PROBE  Computer R e s o u r c e s C o r p o r a t i o n  SCORE  Programming Methods I n c . ( P M l ) (us 7  STRATA  Touche Ross & Co. (US)  SYSTEM 2170  P e a t M a r w i c k , M i t c h e l l & Co. (US)  TABGEN  Sun L i f e A s s u r a n c e Co. o f Canada  TRAP  Touche Ross & Co. (Canada)  UCANDU  G u l f O i l Canada L t d .  20  Moore and Yocom ^ w r o t e : ... one o f the most f r u s t r a t i n g e x p e r i e n c e s f o r the non-EDP t e c h n i c i a n i s t o attempt t o get prompt, c o n c i s e , u s e f u l r e p o r t s from an EDP systems. B e f o r e , a u d i t o r s had understandings  t o depend upon EDP  experts.  Mis-  were common and t h i s r e s u l t e d i n e r r o r s and  waste o f t i m e . Due  t o the f a c t t h a t a l l o f t h e s e packages  f u n c t i o n s i m i l a r l y , and t h a t t h e y a l l aim a t  efficient  t r a i n i n g and usage, a g e n e r a l d e s c r i p t i o n may  suffice.  They c o n s i s t of a program or s e t o f programs d e s i g n e d e x t r a c t a c c o u n t i n g d a t a from the c l i e n t ' s accounting f i l e s . t a p e s and  to  computerized  These programs are m o s t l y s t o r e d on  some packages a r e a v a i l a b l e i n more t h a n  v e r s i o n t o f i t the c l i e n t s ' machines and  one  systems.  D u r i n g the r e t r i e v a l , m a n i p u l a t i o n o f f i l e s f i e l d s such f u n c t i o n s as c a l c u l a t i n g , s a m p l i n g , s t r a t i f y i n g and t e s t i n g may  and  sorting,  be c a r r i e d out as d e s i r e d .  In  many systems, p r i n t i n g o r r e p o r t s i n v a r i o u s f o r m a t s i s a b u i l t - i n f u n c t i o n as w e l l .  Oonfirmation l e t t e r s  p o s i t i v e o r n e g a t i v e , o r b o t h ) may  a l s o be  (either  produced.  P i g u r e 2 i s a s i m p l i f i e d diagram showing the g e n e r a l procedure  of a c o m p u t e r i z e d  a u d i t package system.  I t s h o u l d be n o t e d t h a t the d e t a i l e d p r o c e d u r e s  of d i f f e r e n t  ^ M i c h a e l R. Moore and R i c h a r d H. Yocom, "AY A u d i t / Management System: An I n f o r m a t i o n T o o l f o r A u d i t o r s and Managers," Computer A u d i t i n g i n the S e v e n t i e s ( A r t h u r Young & Company), p. 29.  21  Figure 2 A SIMPLIFIED DIAGRAM OE THE GENERAL PROCEDURE OE A COMPUTERIZED AUDIT PACKAGE  22 packages v a r i e s due t o t h e d e s i g n s o f t h e systems. I n f o r m a t i o n from s p e c i f i c a t i o n s h e e t s i s c o n v e r t e d i n t o punched c a r d s .  These s o - c a l l e d s p e c i f i c a t i o n  a r e p r e - p r i n t e d forms and t h e a u d i t o r s f i l l u s i n g pre-determined  codes.  sheets  them out by  The s p e c i f i c a t i o n  sheets  r e p r e s e n t t h e source program f o r r e t r i e v a l and a n a l y s i s . The  e x a c t method o f c o m p l e t i n g them depends upon t h e i r  format. (1)  I n g e n e r a l , f o u r k i n d s o f d e s i g n a r e employed:  coding, (2) c h e c k l i s t / q u e s t i o n n a i r e , (3) s t r u c t u r e d  s e t s o f forms, and ( 4 ) i n t e r a c t i v e a u d i t command  language.  Functions The  r e q u i r e d r o u t i n e s are e x t r a c t e d from the  package; i n t u r n , e i t h e r s i n g l y o r t o g e t h e r w i t h o t h e r punched c a r d s , t h e y p e r f o r m what i s "commanded".  The  most common r o u t i n e s t h a t a r e i n c o r p o r a t e d i n t h e p r e s e n t packages a r e summarized i n t a b l e V I I .  A l l these f u n c t i o n s  can be c a t e g o r i z e d as f o l l o w s : (1) access, (2) t e s t i n g , (3) r e o r g a n i z a t i o n , (4) s e l e c t i o n and a n a l y s i s , (5) c a l c u l a t i o n , (6) r e p o r t i n g , and (7) m i s c e l l a n e o u s . I t i s not intended to give a d e t a i l e d o f t h e v a r i o u s packages i n t h i s s t u d y .  description  This information  23 Table V I I THE MOST COMMON ROUTINES OP AUDIT PACKAGES  F.eatures  No. o f Responses  5  Percentages  ACCESS (Pile) Creation/Generation/ Reformatting (Extract-ion) ( P i l e ) S e l e c t i o n (no reformatting)  32  84.2%  23  60.5%  (Input) P i l e E d i t i n g  29  76.3%  31 36 32 27 28 34 34 30  81.6% 94.7% 84.2% 71.0% 73.7% 89.5% 89.5% 79.0%  TESTING Aging Comparison o f F i e l d s Comparison o f F i l e s Table-lookup Field Classification Include/Exclude Match/Merge Sequence C h e c k i n g  -  REORGANIZATION I n s e r t (Add d a t a i n t o a f i l e ) Move ( T r a n s f e r d a t a from one f i e l d t o another) Reformat Sort Stratification Summarize 5  26  68.4%  29 31 32 34 38  76.3% 81.6% 84.2% 89.5% 100.0%  The f i g u r e s under t h i s column h e a d i n g a r e t h e numbers o f r e s p o n s e s t o t h e c o r r e s p o n d i n g i t e m s e x p r e s s e d as p e r c e n t a g e s o f t h e t o t a l number o f 38 answers by t h e responding firms.  24 Table V I I (continued)  Features  No. o f Responses  Percentages  SELECTION & ANALYSIS The S e a r c h Block Selection Systematic Sampling A t t r i b u t e Sampling  27 26 33 27  71.1$ 68.4% 86.8% 71.1%  Accumulation B a s i c Mathematical' Operations  37 38  97.4% 100.0%  F o o t i n g & R e c o r d Counts R a t i o Computation  37 23  97.4% 60.5%  Subtotal Percentages Averages  37 28' 26  97.4% 73.7% 68.4%  34 32 33 27 25 23 25  89.5% 84.2% 86.8% 71.1% 65.8% 60.5% 65.8%  CALCULATIONS  REPORTING Listing P r i n t Names & A d d r e s s e s P r i n t T i t l e s & Headings Punch Cards Positive Confirmation Letter Negative Confirmation L e t t e r Tabulate Reports  The f i g u r e s under t h i s column h e a d i n g are "the numbers o f r e s p o n s e s t o t h e c o r r e s p o n d i n g i t e m s e x p r e s s e d as p e r c e n t a g e s o f t h e t o t a l number o f 38 answers by t h e responding firms.  6  c o u l d be o b t a i n e d from t h e pamphlets or b o o k l e t s of t h e v a r i o u s systems.  F u r t h e r m o r e , t h e r e i s no a t t e m p t t o  compare t h e s e systems.  S t u d i e s i n t h i s a r e a had been  done and p u b l i s h e d under t h e h e a d i n g o f  "Computer-Based  7  Auditing"  i n t h e C a n a d i a n C h a r t e r e d A c c o u n t a n t and  under  Q  the t i t l e  of "A Survey o f A u d i t S o f t w a r e "  i n the J o u r n a l  of Accountancy. SUMMARY T h i s c h a p t e r p r e s e n t s t h e o u t l i n e o f v/hat an a u d i t package  i s , what i t i s composed o f , and how  programs  o r subprograms  a r e summarized  i t works.  The  i n t a b l e V I I which Q  lists  o n l y t h o s e common and i m p o r t a n t f u n c t i o n s  '. .H. J . W i l l , "Computer-Based A u d i t i n g , " C h a r t e r e d A c c o u n t a n t , F e b r u a r y and March, 1972.  .  Canadian  Q  Adams and M u l l a r k e y , op. c i t . 9  list.  See p a g e s 97-9 o f a p p e n d i x B f o r a more complete  CHAPTER I I I COST-BENEFIT ANALYSIS INTRODUCTION The  primary  f a c t o r t o he c o n s i d e r e d  development' and i m p l e m e n t a t i o n benefit relationship.  i n the design,  o f a system i s i t s c o s t -  I n s u f f i c i e n t c o s t d a t a made t h i s  a n a l y s i s o f a u d i t packages i n f e a s i b l e , b u t a d i s c u s s i o n of t h e c o s t s t h a t have t o be c o n s i d e r e d t h a t w o u l d be g a i n e d in this  and t h e b e n e f i t s  from t h e u t i l i z a t i o n a r e p r e s e n t e d  chapter. COSTS Two c a t e g o r i e s o f c o s t s have t o be t a k e n  c o n s i d e r a t i o n : ( 1 ) d i r e c t c o s t s and ( 2 ) i n d i r e c t Direct  into costs  Costs D i r e c t c o s t s i n c l u d e ( 1 ) the cost of design, (2)  the c o s t o f development and i m p l e m e n t a t i o n ,  and ( 3 ) t h e  c o s t o f improvements and amendments. Cost of design.  The s i z e and q u a l i t y o f t h e team  i n d e s i g n i n g t h e system and t h e time i n c u r r e d f o r m t h e elements o f t h i s c o s t .  Here, d i r e c t c o s t s r e f e r t o t h o s e r e l a t i n g t o t h e a u d i t package systems. 26  directly  27 S h o u l d t h e wgge o f the i - t h employee who worked T^ u n i t time i n t h i s t a s k o f d e s i g n he  d o l l a r s and s h o u l d  t h e r e he n employees, t h e n t h e t o t a l c o s t o f d e s i g n would he t h e sum o f "F"' and represented  n  miscellaneous  products  o f W^T^ where "F"  expenses i n c u r r e d .  would i n c l u d e s t a t i o n e r y charges,  f r i n g e b e n e f i t s of  employees and o t h e r s p e c i a l a l l o w a n c e s t h i s task.  These expenses  i n connection  with  S h o u l d t h e r e be a l o s s i n revenue due t o t h e  t r a n s f e r o f an employee from one department t o t h i s t h e n t h e wage o f t h e employee s h o u l d i n c l u d e  task,  this  o p p o r t u n i t y cost o f l o s s i n revenue. Cost o f development and i m p l e m e n t a t i o n . a d d i t i o n t o t h e two main components c o n s i d e r e d  In i n the cost  of d e s i g n , t h e computer c h a r g e s have t o be i n c l u d e d .  These  w o u l d i n c l u d e t h e computer d o l l a r s i n v o l v e d i n the t e s t i n g and  debugging o f t h e programs ( r o u t i n e s ) and t h e r e n t a l  and/or p u r c h a s e c o s t s o f t h e hardware and s o f t w a r e .  The  t o t a l c o s t w o u l d be t h e sum o f t h e c o s t o f d e s i g n and t h e computer  charges. P o s t o f improvements and amendments.  p e r i o d s have t o be i n v o l v e d .  This cost i s a b i t d i f f i c u l t ,  hut n o t i m p o s s i b l e , t o measure. cahs o u t l a y has t o be d e t e r m i n e d . be c o n s i d e r e d cost.  Future  An e s t i m a t i o n o f f u t u r e I n f a c t , t h i s c o s t can  as f u t u r e "development and  implementation"  I f the c o s t o f improvements and amendments i n the  j - t h p e r i o d i s C . , d i s c o u n t i n g w i t h a r a t e of  r  percent  which i s pre-determined, the present value of the t o t a l  28 c o s t o f improvements and amendments w i l l be: C. ,1  +r)^  (1  d I n d i r e c t Costs  Training cost. t r a i n i n g cost.  I n most f i r m s , a t r a i n i n g program i s  u s u a l l y provided period.  The main i n d i r e c t c o s t i s t h e  and a. s a l a r y i s p a i d d u r i n g t h e t r a i n i n g  I n order  to f a c i l i t a t e future "auditing with the  computer", i n i t i a l t r a i n i n g i s i m p o r t a n t .  One way t o  minimize the cost of t r a i n i n g i s to shorten  the t r a i n i n g  p e r i o d without changing the p o t e n t i a l e f f i c i e n c y . regarding  Dis-  t h e e d u c a t i o n a l b a c k g r o u n d , t h e most common  t r a i n i n g .period i s f o r t y w o r k i n g h o u r s .  The t r a i n i n g  p e r i o d may, however, be as s h o r t as one day and as l o n g as few months.  Of c o u r s e , i t a l l depends upon t h e p e r s o n  t o be t r a i n e d and t h e package t o be u s e d .  A l s o , the l e v e l s  of f a m i l i a r i t y o f t h e t r a i n e e s w i t h packages d i f f e r .  In  g e n e r a l , l e s s t h a n one week i n t r a i n i n g i s a l l t h a t i s necessary. Miscellaneous  costs.  Any c o s t s t h a t a r e n o t  r e l a t e d d i r e c t l y w i t h t h e packages a r e i n c l u d e d i n t h i s category.  Such c o s t s would i n c l u d e t h o s e caused by e r r o r s  made d u r i n g i n i t i a l a p p l i c a t i o n s and s t a t i o n e r y c o s t s as expenses i n c u r r e d i n s p e c i f i c a t i o n s h e e t s , p a p e r s and p e n c i l s .  such  punch c a r d s ,  29 Summary The  c o s t s d e s c r i b e d above may n o t be a b l e t o be  d i s t i n g u i s h e d s h a r p l y among one a n o t h e r . to more t h a n one c a t e g o r y .  They may b e l o n g  At any r a t e , t h e e s t i m a t e d  t o t a l c o s t s would be t h e i r summation. BENEFITS There a r e v a r i o u s b e n e f i t s t h a t would be g a i n e d from t h e use o f AP's.  These i n c l u d e : ( 1 ) f u t u r e c o s t  r e d u c t i o n , (2) h i g h e r e f f i c i e n c y ,  (3) r e l i a b i l i t y ,  ( 4 ) ease  i n i n p u t , ( 5 ) e f f e c t i v e r e p o r t i n g , and ( 6 ) improved human relations. Future Post  Reduction  A u d i t packages a r e p r i m a r i l y d e s i g n e d f o r t h e r e t r i e v a l o f d a t a from t h e f i l e s and f o r p e r f o r m i n g t h e d e s i r e d data manipulations, w i t h the expectation of reduced  c o s t s when compared v/ith o t h e r  approaches. minutes,  (non-computerized)  The machine, .performs a t a s k i n a m a t t e r o f  whereas t h e a u d i t team would have spent  i f n o t days,  on t h e same j o b .  hours,  F o r example, "a t y p i c a l  r e t r i e v a l program w i l l examine 5,000 a c c o u n t s i n t h r e e 2 m i n u t e s - no c l e r k can match t h a t " . The prime f a c t o r B. G. J e n k i n s and P..JYL Benson, "Computer A u d i t Packages, An I n t r o d u c t i o n , " Report o f P r o c e e d i n g s Computer A u d i t Packages: I n f o r m a t i o n R e t r i e v a l & S p e c i a l i z e d A u d i t F e a t u r e s ( P o r t l a n d P l a c e , London: The B r i t i s h Computer S o c i e t y ) , paper 1, p. 2.  30  causing  t h e c o s t r e d u c t i o n i s t h e time i n the  of a u d i t s t h a t may  he  performance  reduced.  Time r e d u c t i o n . w i t h the a i d o f an AP.  U s u a l l y time i s saved i n a u d i t Prom the sample p o p u l a t i o n ,  3% s t a t e d t h a t t h e r e was no time r e d u c t i o n i n the of c l e r i c a l work, w h i l e  2 5 % d i d n o t answer.  only performance  Table V I I I  g i v e s a summary o f the r e s p o n s e s t o the p e r c e n t a g e s o f time saved. The  second column of the t a b l e g i v e s the number o f  f i r m s w i t h AP's  t h a t responded t o the v a r i o u s  answers.  The f i g u r e s i n the t h i r d column a r e the t o t a l number of responding firms while  the l a s t column summarizes i n the  form o f p e r c e n t a g e s e x p r e s s e d i n r e l a t i o n t o the t o t a l number o f p a r t i c i p a t i n g f i r m s . The amount of c l e r i c a l work r e d u c e d v a r i e s  because  of the t y p e s o f a u d i t t a s k s c a r r i e d out i n an a u d i t . D i f f e r e n t f i r m s p l a c e d i f f e r e n t emphasis tasks.  Some f i r m s r e p o r t e d  more comprehensive the  on t h e  various  t h a t due t o the time saved, a  examination i s p o s s i b l e .  Performing  same j o b , c l e r i c a l time i s s a v e d , . o r w i t h the same  amount of t i m e , more work can he  performed.  Higher E f f i c i e n c y The use of AP's and i n p u t .  saves time and energy i n t r a i n i n g  The AP's g u a r a n t e e t h a t e v e r y r e c o r d  the  a u d i t o r i s l o o k i n g f o r has been p r i n t e d out ( s u b j e c t t o c o r r e c t programming).  They e n a b l e the a u d i t o r s t o spend  Table VIII SUMMARY OF THE RESPONSES TO THE PERCENTAGE OF TIME SAVED BY AUDITING WITH AN AP  F ? rms With AP's  FIrms W i t h o u t AP's  Total  Percentages  No t i m e s a v e d  0  3  3  3.(1%  Less t h a n 10% o f t i m e s a v e d  5  9  11+  15.6%  10-25% o f time s a v e d  ,//9  9  18  20.0%  25-50% o f t i m e s a v e d  10  9  19  21.2%  More t h a n 50% o f t i m e s a v e d  6  7  13  lh.h%  9  23  25.5%  90  100.0%  Amount  No i d e a TOTAL  lk  46  The f i g u r e s under t h i s column h e a d i n g o f " p e r c e n t a g e s " a r e ;the,numbers i n t h e t h i r d c o l u m n ( u n d e r t h e h e a d i n g o f " T o t a l " ) e x p r e s s e d as - p e r c e n t a g e s o f t h e t o t a l number o f 90 p a r t i c i p a t i n g f i r m s .  32 t h e i r time where i t i s most u s e f u l . i s more e f f e c t i v e .  The  Besides,  a u d i t o r i s no l o n g e r  communication spending  an  i n o r d i n a t e amount of time making h i s needs known t o d a t a processing  personnel.  He  i s "placed  i n d i r e c t communication  w i t h an a u d i t - o r i e n t e d computer f a c i l i t y . communicate w i t h d a t a p r o c e s s i n g obtaining basic information of t h e i r computer r e c o r d s  The  need t o  personnel apart  r e l a t i n g t o the  from  organization  i s l a r g e l y b y - p a s s e d " ^.  The  p o s s i b i l i t y of m i s u n d e r s t a n d i n g i s r e d u c e d s u b s t a n t i a l l y . In general, e f f i c i e n c y t h a n any  a u d i t packages y i e l d h i g h e r other techniques.  r e q u i r e s l e s s time t h a n p r e p a r i n g each a u d i t s i t u a t i o n .  On  audit  Obviously,  it  s p e c i f i c programs f o r  the a v e r a g e , i t appears t o  more e f f i c i e n t than a u d i t i n g around the computer. t h o s e p a r t i c i p a t i n g f i r m s w h i c h use a u d i t i n g w i t h an AP was the r e s p o n s e s can be  AP's  more e f f i c i e n t .  seen from t a b l e  stated The  be  77%  of  that  r e s u l t of  IX.  T a b l e IX i n d i c a t e s t h a t some f i r m s were e i t h e r u n w i l l i n g t o answer t h i s q u e s t i o n  or not  sure of  the  c o m p a r i s o n between the e f f i c i e n c y of an A P - a u d i t and  an  around-the-computer a u d i t .  very  However, t h e y c o m p r i s e a  s m a l l p o r t i o n of the whole s u b s e t . o f AP's  i s considered  On the w h o l e , the  use  more e f f i c i e n t t h a n a u d i t i n g around  the computer o r a p p l y i n g a s p e c i f i c programming l a n g u a g e .  ^ R i c h a r d Webb, "AUDASSIST," J o u r n a l of A c c o u n t a n c y, November 1970, p. 54.  T a b l e IX RESPONSES OF VARIOUS TYPES OF FIRMS TO THE COMPARISON OF EFFICIENCY OF VARIOUS AUDIT TECHNIQUES  International Firms Audit around t h e computer  0  No i d e a TOTAL  0 0.0*)  Regional Firms  Local Firms  0 ('. 0.  (  0 0.n>  (  4.6%)  (11.3%)  ( 2.3%)  (  0.0%)  (  (13.6%)  (  ( 9. 1%)  (  22 (50.0%)  11 (25.0%)  (13.7%)  (11.3%)  C  Audit with t h e computer B o t h a r e more o r l e s s t h e same  National Firms  0.0%) 15  (  2.3%)  (  2.3%)  0 0.05)  Total  (  o.o%)  (  31 70.k%)  0 0.0%)  (  k:s%)  0 0.0%)  (  11 25.0%) kk  :(!.100.0%)  The f i g u r e s i n p a r e n t h e s i s a r e t h e c o r r e s p o n d i n g numbers e x p r e s s e d a s p e r c e n t a g e s t o t h e t o t a l number o f kk a n s w e r s b y t h e r e s p o n d i n g f i r m s .  34 Reliability "The  system s h o u l d be d e s i g n e d  r e l i a b i l i t y and a c c u r a c y 6 ..."  .  t o check the  of f i n a n c i a l d a t a , m i n i m i z e  error  I n u s i n g an AP, most r o u t i n e c l e r i c a l work i s  c a r r i e d out by the machine, t h u s m i n i m i z i n g h u m e n - e r r o r s . At the same t i m e , f r a u d can be d e t e c t e d more e a s i l y quickly.  and  Hence, the r e s u l t o f the a u d i t can be more  r e l i a b l e t h a n the t r a d i t i o n a l manual a u d i t . Ease I n  Input Ease i n commanding the computer.  In designing a  system, the ease o f i n p u t t i n g d a t a and commands has considered. of  T h i s i s one  o f the r e a s o n s f o r the development  AP's. The  so c a l l e d " a u d i t l a n g u a g e " u s e d i n AP's  much s i m p l e r t h a n any o t h e r programming l a n g u a g e . a r e v e r y n e a r - E n g l i s h or even f o r m a t - f r e e . r e q u i r e the c h e c k i n g o f s q u a r e s o r boxes. i n i n p u t would m i n i m i z e mistakes  is They  Some o n l y This  the amount o f e r r o r s .  i n programming i n c u r c o s t s and,  d e s i g n o f the AP's  simplicity Any  t h u s , the  input  can be a c o s t r e d u c t i o n f a c t o r as w e l l .  W i t h the a u d i t package, the a u d i t o r needs o n l y f i l l set  t o be  of p r e - p r i n t e d s p e c i f i c a t i o n The most common and  in a  sheets.  e a s i e s t t o complete i s t h e  James B. Bower, R o b e r t E. S c h l o s s e r , and C h a r l e s T. Z l a t k o v i c h , E i n a n c i a l I n f o r m a t i o n Systems: Theory and P r a c t i c e ( B o s t o n : A l l y n and Bacon, I n . , 1969"), p. 40.  c h e c k l i s t / q u e s t i o n n a i r e form. i n boxes o r squares  I t merely r e q u i r e s f i l l i n g  on a p r e - d e s i g n e d  n a r r a t i v e form.  A n o t h e r one i s t h e s t r u c t u r e d s e t o f forms.  More d e t a i l s  may have t o be g i v e n , b u t c o m p a r a t i v e l y s p e a k i n g , i t i s much s i m p l i e r t h a n o t h e r computer l a n g u a g e s . more n a r r a t i v e i n form than t h e p r e v i o u s two. language s i m i l a r t o a b b r e v i a t e d E n g l i s h .  Coding i s It i sa  L e a s t common,  but v e r y e f f i c i e n t i s t h e i n t e r a c t i v e a u d i t command language.  I t p r o v i d e s a d i r e c t communication w i t h t h e 7  computer Effective  Reporting  T i m e l y and a c c u r a t e r e p o r t i n g a r e p e r t i n e n t f a c t o r s i n t h e d e s i g n o f a system.  They " s h o u l d he d e s i g n e d t o o  permit e f f e c t i v e r e p o r t i n g "  .  By u t i l i z i n g an AP, o u t -  s t a n d i n g e x c e p t i o n s can e a s i l y and q u i c k l y be d e t e c t e d and p r i n t e d w i t h i n minutes.  The speed o f d e t e c t i o n and p r i n t i n g  make t h i s r e p o r t b e n e f i t a n o t h e r source f o r time r e d u c t i o n q w h i c h has been d i s c u s s e d above . Improved Human R e l a t i o n s The  i n t e r e s t , s u p p o r t and competence o f those who  ' H. J . W i l l , "An I n t e r a c t i v e ACL ( A u d i t Command Language) P r o t o t y p e , " P r o c e e d i n g s o f t h e A n n u a l C o n f e r e n c e of the Canadian I n f o r m a t i o n P r o c e s s i n g S o c i e t y , S e s s i o n •73, pp. 63-88. Q  Bower, op. c i t . ,  p. 222.  q J  See " F u t u r e Cost R e d u c t i o n "  on pages 29-51.  36  work with, t h e system s h o u l d be t a k e n i n t o c o n s i d e r a t i o n . I t depends upon t h e need f o r t r a i n i n g and t h e ease o f programming.  The l o n g e r t h e t r a i n i n g , t h e b e t t e r w i l l t h e  employees be e q u i p p e d .  However, t h i s means more c o s t s .  F o r t u n a t e l y , on t h e a v e r a g e , t h e t r a i n i n g p e r i o d i s l e s s t h a n a week A n o t h e r human f a c t o r t o be c o n s i d e r e d  i s motivation.  Among t h e e s s e n t i a l m o t i v a t i n g f o r c e s , ( 1 ) t h e urge t o s u c c e e d and t o a c h i e v e , and (2) t h e urge t o a v o i d and  disappointment  failure  a r e t h e most s i g n i f i c a n t ones as f a r as  a u d i t i n g EDP r e c o r d s i s c o n c e r n e d .  These two a r e , none-  t h e l e s s , e a s i l y a t t a i n e d hy t h e use o f AP's because o f t h e ease i n u s i n g t h e systems as d i s c u s s e d i n t h e p r e v i o u s 11  section L e a r n i n g a f f e c t s t h e morale o f t h e u s e r s . the l e a r n i n g p r o c e s s before  Should  be t o o l o n g , u s e r s may l o s e i n t e r e s t  t h e y a c t u a l l y use t h e system.  Their  frustration  may i n t u r n a f f e c t t h e i r performance o f o t h e r a u d i t t a s k s . At t h e same t i m e , a l o n g t r a i n i n g program may i n c u r a hugh 12 cost  .  The s h o r t t r a i n i n g p e r i o d and t h e ease i n l e a r n i n g  t o command o r program s o l v e s t h e problem. F i n a l l y , the a n a l y s i s covers the i d e a l f o r mastering  an AP.  qualifications  The r e s u l t s h o u l d be o f i n t e r e s t t o  See  " T r a i n i n g c o s t " on page 28.  See  "Ease I n I n p u t "  See  " T r a i n i n g c o s t " on page 28.  on pages 3 4 - 5 .  37 many f i r m s s i n c e t h i s g i v e s an i n d i c a t i o n o f f u t u r e recruitment  and t r a i n i n g r e q u i r e m e n t s .  responses t o the question  The r e s u l t o f t h e  of the i d e a l q u a l i f i c a t i o n f o r  m a s t e r i n g an AP i s summarized below: (A) (B) (C) (D) (E)  B a s i c programming knowledge B a s i c d a t a ( f i l e ) o r g a n i z a t i o n knowledge B a s i c computer knowledge Other No i d e a TOTAL I n answers t o D', o t h e r s  i n c l u d e good l o g i c a l and  1  a n a l y t i c a l mind, b a s i c knowledge o f s y s t e m s , and a u d i t i n g knowledge. regardless ever,  20.6% 35.0% 25.0% 13.8% 5.6% 100.0%  accounting  These a r e r e q u i r e d by an a u d i t o r ,  o f h i s d e c i s i o n t o use an AP i n h i s a u d i t ; how-  t h e y i n d i c a t e t h e u s e r - o r i e n t a t i o n among t h e  p r o f e s s i o n a l s r a t h e r than t e c h n o c r a t i c  tendencies.  SUMMARY This chapter concentrates a n a l y s i s of a u d i t packages.  on t h e c o s t - b e n e f i t  In c o n s i d e r i n g the c o s t s ,  b o t h d i r e c t and i n d i r e c t c o s t s s h o u l d "be i n c l u d e d .  These  a r e expenses i n c u r r e d i n t h e p r o c e s s e s o f d e s i g n , development and i m p l e m e n t a t i o n , and improvements and amendments.  T r a i n i n g cost i s another cost f a c t o r .  On  the o t h e r hand, t h e r e a r e b e n e f i t s g a i n e d from t h e utilization. six  The a n a l y s i s o f t h e c o l l e c t e d d a t a  advantages i n t h i s chapter,  higher  efficiency, reliability,  being  future cost  ease i n i n p u t ,  gives reduction,  effective  r e p o r t i n g and  improved human r e l a t i o n s .  c h a p t e r w i l l c o n s i d e r and  discuss other  The  following  merits.  CHAPTER. IV ANALYSIS - CONTINUED INTRODUCTION C o n s i d e r a t i o n s d i r e c t l y a f f e c t i n g t h e development o f packages have heen d i s c u s s e d i n t h e p r e v i o u s  chapter.  T h i s c h a p t e r w i l l c o n c e n t r a t e on o t h e r f a c t o r s such as the change i n t h e emphasis o f v a r i o u s a u d i t t a s k s , t h e aid  i n a c h i e v i n g t h e a u d i t s t a n d a r d s and t h e e f f e c t upon  employment when AP's a r e u s e d . AUDIT STANDARDS In  t h e p u r s u i t o f g r e a t e r c l a r i t y and c o n f o r m i t y ,  a u d i t o r s have sought t o draw up a d e f i n i t e code o f s t a n d a r d s . At the meeting of the American I n s t i t u t e of Accountants ( A I A ) , now t h e A m e r i c a n I n s t i t u t e o f C e r t i f i e d Accountants  (AICPA),  Public  i n 1948, as a r e s u l t o f p r e l i m i n a r y  work hy an i n s t i t u t e committee, t e n s t a t e m e n t s  of standards  grouped under t h r e e main c a t e g o r i e s were adopted under t h e headings of "general standards", "standards and  "standards The  o f f i e l d work"  of r e p o r t i n g " .  "standards  of r e p o r t i n g " i n c l u d e :  (1) The r e p o r t s h a l l s t a t e whether t h e f i n a n c i a l are p r e s e n t e d ' i n a c c o r d a n c e w i t h g e n e r a l p r i n c i p l e s of accounting. 39  statements  accepted  40 (2) The r e p o r t s h a l l s t a t e whether such p r i n c i p l e s have been c o n s i s t e n t l y o b s e r v e d i n t h e c u r r e n t p e r i o d i n r e l a t i o n to the preceding (3) I n f o r m a t i v e  period.  d i s c l o s u r e s i n the f i n a n c i a l  are t o be r e g a r d e d as r e a s o n a b l y otherwise  statements  adequate  unless  s t a t e d i n the r e p o r t .  ( 4 ) The r e p o r t s h a l l e i t h e r c o n t a i n an e x p r e s s i o n o f opinion regarding  t h e f i n a n c i a l s t a t e m e n t s , t a k e n as  a w h o l e , o r an a s s e r t i o n t o t h e e f f e c t t h a t an o p i n i o n cannot be e x p r e s s e d .  When an o v e r a l l o p i n i o n cannot  be e x p r e s s e d , t h e r e a s o n s t h e r e f o r e s h o u l d be s t a t e d . I n a l l c a s e s where an' a u d i t o r ' s name i s a s s o c i a t e d w i t h f i n a n c i a l statements the report should  contain  a c l e a r c u t i n d i c a t i o n of the character of the a u d i t o r ' s examination,  i f any, and t h e degree o f r e s p o n s i b i l i t y  he i s t a k i n g . Reporting  i s a summarization of the extent of  v e r i f i c a t i o n , t h e f i n d i n g s and t h e c o n c l u s i o n .  Reporting  has  t o be c o m p l e t e d by t h e a u d i t o r o r an e q u i v a l e n t  and  i s n o t b u i l t i n t o AP's.  person  The f o u r s t a t e m e n t s under  " s t a n d a r d s o f r e p o r t i n g " cannot be a s s i s t e d by AP's although  the compliance w i t h standard  number one c a n be  t e s t e d w i t h AP's. S a t i s f a c t i o n o f t h e o t h e r s t a n d a r d s w i l l a l s o be a s s i s t e d by t h e use o f A P ' s .  General  Standards  ( 1 ) The e x a m i n a t i o n i s t o he p e r f o r m e d hy a p e r s o n o r p e r s o n s h a v i n g adequate t e c h n i c a l t r a i n i n g and p r o f i c i e n c y as an a u d i t o r . - D i s r e g a r d i n g whether an AP i s u s e d o r n o t , p r e s e n t day a u d i t o r s have t o p o s s e s s some knowledge o f EDP.  T h i s has been r e f l e c t e d i n t h e  s t u d y towards any a c c o u n t i n g d e s i g n a t i o n .  Knowing how  t o master an AP i n d i c a t e s t h a t t h e a u d i t o r has been t r a i n e d i n t h i s a r e a and i n t u r n makes him more t e c h n i c a l l y t r a i n e d and more p r o f i c i e n t as an a u d i t o r . (2) I n a l l m a t t e r s r e l a t i n g t o t h e assignment  an independence  i n m e n t a l a t t i t u d e i s t o be m a i n t a i n e d by t h e a u d i t o r o r a u d i t o r s . - A l a c k o f knowledge o f EDP w i l l r e q u i r e an a u d i t o r t o depend upon o t h e r s p e c i a l i s t s . thus l e s s independent.  He i s  The use o f AP's e n a b l e s t h e  a u d i t o r t o r e t r i e v e and a n a l y s e d i r e c t l y t h e d a t a and i s t h u s more independent  t h a n " a u d i t i n g around the  computer". (3)  Due p r o f e s s i o n a l c a r e i s t o he e x p e c t e d i n t h e performance o f the e x a m i n a t i o n and t h e p r e p a r a t i o n o f t h e r e p o r t . EDP r e c o r d s a r e more c o m p l i c a t e d t h a n o t h e r a c c o u n t i n g r e c o r d s and i t w o u l d be i m p o s s i b l e t o c a r r y out t h e a t t e s t f u n c t i o n w i t h o u t due p r o f e s s i o n a l c a r e .  S t a n d a r d s ' o f F i e l d Work ( 1 ) The work i s t o be a d e q u a t e l y p l a n n e d and a s s i s t a n t s , i f any, a r e t o be p r o p e r l y s u p e r v i s e d . - I t i s n o t  42 p o s s i b l e t o command an AP w i t h o u t p l a n n e d  assignment  and the computer t a k e s the r o l e of an a s s i s t a n t t h a t can e a s i l y be s u p e r v i s e d . (2) There i s t o be a p r o p e r s t u d y and e v a l u a t i o n o f the e x i s t i n g i n t e r n a l c o n t r o l as a b a s i s f o r r e l i a n c e t h e r e o n and f o r the d e t e r m i n a t i o n o f the r e s u l t a n t e x t e n t o f the t e s t s t o w h i c h a u d i t i n g p r o c e d u r e s  are  t o be r e s t r i c t e d . - The i n c r e a s e i n a c c o u n t i n g r e c o r d s caused the s h i f t from d e t a i l e x a m i n a t i o n t o the 1 emphasis o f i n t e r n a l c o n t r o l a c c o u n t i n g systems,  .  V/ith computer-based  i n t e r n a l c o n t r o l p l a y s the m a j o r  r o l e p a r t i c u l a r l y because t h e y are not r e a d a b l e w i t h o u t the a i d o f a computer.  Hence s t u d y and e v a l u a t i o n o f  the e x i s t i n g i n t e r n a l c o n t r o l i s i n d i s p e n s a b l e i n the use o f AP's  i n auditing.  (3) S u f f i c i e n t competent e v i d e n t i a l m a t t e r i s t o be obtained through i n s p e c t i o n , o b s e r v a t i o n , i n q u i r i e s and c o n f i r m a t i o n s t o a f f o r d a r e a s o n a b l e b a s i s f o r an o p i n i o n r e g a r d i n g the f i n a n c i a l s t a t e m e n t s under e x a m i n a t i o n . - The  computer has brought w i t h i t new  methods of a c c o u n t i n g systems d o c u m e n t a t i o n , f l o w c h a r t s and diagrams. o b t a i n i n g o f t h e s e new  U s i n g AP's  such as  facilitates  the  documents i n a d d i t i o n t o the  p r e v i o u s l y obtained evidence i n e x p r e s s i n g o p i n i o n upon t h e f i n a n c i a l See  statements.  " A u d i t Tasks" on pages 47-51.  43  The  o p i n i o n of the p a r t i c i p a t i n g  firms i n  connection  w i t h a u d i t s t a n d a r d s and  computer-auditing  i s tabulated  and  Roughly s p e a k i n g ,  more t h a n  a p p e a r s on page 44.  agree t h a t the packages meet the a u d i t s t a n d a r d s , the t h i r d " s t a n d a r d  of f i e l d work", because  50%  particularly  sufficient  competent a u d i t programmes are most f r e q u e n t l y u s e d i n m e e t i n g the s t a n d a r d s of f i e l d work r e q u i r i n g o b t a i n i n g and  a n a l y s i s of competent  evidential  matter.  A n o t h e r q u e s t i o n a r i s e s from the use w h e t h e r new  s t a n d a r d s are r e q u i r e d .  of AP's,  namely  Table XI p r e s e n t s  the  p r o p o r t i o n of r e s p o n d e n t s r e p l y i n g to t h i s q u e s t i o n . t h a n 5 0 % s t a t e t h a t new 22% do not a g r e e . not g i v e any few  s t a n d a r d s are not r e q u i r e d .  More Only  I n f a c t most of the l a t t e r group do  strong reasons.  Pollowings  are some of  the  explanations: Yes - a u d i t o r must become more i n v o l v e d k n o w l e d g a b l e w i t h computers ...  and  Yes - t o a u d i t e f f e c t i v e l y one must u n d e r s t a n d what one i s d o i n g ... Yes - ... n o n - d a t a p r o c e s s i n g p e r s o n n e l do not u n d e r s t a n d how the a u d i t package works ... How  much s h o u l d an a u d i t o r know about the  i s questionable. u n d e r s t a n d how  I t i s t r u e t h a t some a u d i t o r s do  the system w o r k s .  computer not  However, an a u d i t o r does  n o t have t o b o t h e r about t h i s s i n c e h i s main c o n c e r n i s expressing He  an o p i n i o n upon the examined f i n a n c i a l  statements.  s h o u l d he a l e r t t o what he i s d o i n g a t a l l t i m e s .  i s o n l y a new  a u d i t i n g technique  and  standards s p e c i f y  AP  Table X RESPONSES TO MEET VARIOUS AUDIT," STANDARD S  Standards  F i rms With APIs..  Audit by t r a i n e d and p r o f i c i e n t auditors  26  (60%)  F i rms Without A P ' s  2  Total  18  (39%)  kk (1+9%)  Independence In the a u d i t o r ' s mental a t t i t u d e and approach  '28  (63%)  31  (67%)  59 (65%)  Due care in the performance of the a u d i t o r ' s work  25  (57%)  19  (1+0%)  kk (£+9%)  10. (50%)  16  (35%)  38 (l+-2%)  Worfkbeing  adequately-planned and supervised  Proper study and e v a l u a t i o n of i n t e r n a l c o n t r o l Sufficient  23  (52%)  .28  (60%)  51 (57%)  competent e v i d e n t i a l matter obtained  35  (79%)  35  (76%)  70 (78%)  No.answer  5  (11%)  .2  ( •+%)  7 ( 8%)  The f i g u r e s in parenthesis under t h i s column heading are expressed as percentages to the t o t a l number of kk responding f i r m s with A P ' s . ' The f i g u r e s as percentages to the ii The f i g u r e s as percentages to the  in parenthesis under t h i s column heading are expressed t o t a l number of kS responding f i r m s without A P ' s . in parenthesis under thTs column heading are expressed t o t a l number of a l l 90 p a r t i c i p a t i n g f i r m s .  45 c h a r a c t e r i s t i c s o f the end r e s u l t , n o t the t o o l . new  Hence,  s t a n d a r d s are n o t n e c e s s a r y . I t i s n o t s u r p r i s i n g t o r e c e i v e more t h a n  answers as "not r e q u i r e d " .  The use of AP's  50%  i s so f a r  o n l y a change i n the a u d i t i n g t e c h n i q u e , a new  approach  and p r a c t i c e t o f a c i l i t a t e a u d i t i n g i n the environment new  of  a c c o u n t i n g t e c h n i q u e s , and not a change i n s t a n d a r d s ! U s i n g AP's has changed the means h u t the  end  o b j e c t i v e of v e r i f y i n g the a c c o u n t s and e x p r e s s i n g o p i n i o n on the f a i r n e s s o f the f i n a n c i a l s t a t e m e n t s i s not However, t h e r e a r e about 20% o f the r e p l i e s w h i c h t h a t new  s t a n d a r d s are r e q u i r e d .  altered. indicate  By r e v i e w i n g the comments  and e x p l a n a t i o n s , an e x t e n t i o n of the p r e s e n t s t a n d a r d s i s Table XI SUMMARY OF FIRMS RESPONDING TO THE REQUIREMENT OF NEW STANDARDS  Firms W i t h AP's  Firms W i t h o u t AP's  Total  "YES"  Answers  10 (11.1%)  11 (12.2%)  21  "NO"  Answers  28 (31.1%)  24 (26.7%)  52 ( 57.8%)  6 ( 6.7%)  11 (12.2%)  17 ( 18.9%)  44 (48.9%)  46 (51.1%)  90  No Answers TOTAL  ( 23.3%)  (100.0%)  The f i g u r e s i n p a r e n t h e s i s are the c o r r e s p o n d i n g numbers e x p r e s s e d as p e r c e n t a g e s t o the t o t a l number of 90 p a r t i c i p a t i n g f i r m s .  5  46  deemed n e c e s s a r y . presently exist.  They want t i g h t e r s t a n d a r d s  than  I n f a c t , t h e y argue t h a t new s t a n d a r d s  s h o u l d he coded f o r more r i g o r o u s a n a l y s i s and i n o r d e r t o guarantee  o b j e c t i v i t y , a c c u r a c y and r e l i a b i l i t y ,  following replies  as t h e  show:  ... T h i s i s a new t e c h n i q u e and r e q u i r e s control. C o n s i d e r a t i o n s t o guarantee i t s o b j e c t i v i t y , a c c u r a c y and r e l i a b i l i t y ... ... S t a n d a r d s s h o u l d be expanded t o r e q u i r e more r i g o r o u s a n a l y s i s ... However, a l l t h e s e can be met w i t h one o r more o f t h e present standards.  A u d i t o r s , h a v i n g adequate t e c h n i c a l  t r a i n i n g and p r o f i c i e n c y ( g e n e r a l s t a n d a r d number one) s h o u l d be a b l e t o determine  t h e amount o f t e s t s and t h e  d e t a i l of v e r i f i c a t i o n . FEES (COSTS CHARGED) Is clients?  t h e r e any e f f e c t upon t h e f e e s charged  to the  ( F o r i n t e r n a l a u d i t i n g , t h i s w o u l d be t h e e f f e c t  of t h e a l l o c a t i o n o f c o s t s . )  The r e s p o n s e s  somewhat t h e c o s t - b e n e f i t t o t h e f i r m s . the r e s p o n s e s  should  reflect  Unfortunately,  were so few t h a t a c o n c l u s i o n c o u l d h a r d l y  be drawn from t h e d a t a . Among t h e r e p l i e s , some c o n s i d e r e d t h a t t h e f e e s (or  c h a r g e s ) w o u l d be a f f e c t e d .  They argued t h a t time  was saved i n c l e r i c a l work and t h e c o s t was d i m i n i s h e d . Some s t a t e d t h a t t h e i n i t i a l a p p l i c a t i o n o f t h e system was even more e x p e n s i v e w h i l e l a t e r a p p l i c a t i o n s would  47  d e f i n i t e l y reduce t h e c o s t . were d i s a g r e e m e n t s .  On t h e o t h e r hand, t h e r e  The main r e a s o n s f o r t h e u n a f f e c t e d  f e e s were: (1)  There W£is no s i g n i f i c a n t r e d u c t i o n i n c o s t .  (2) The r e d u c t i o n i n c o s t c o u l d h a r d l y be q u a n t i f i e d . (3) AP was o n l y a t o o l w h i c h s h o u l d n o t a f f e c t t h e f e e . AUDIT TASKS An a u d i t can be s t a g e d a c c o r d i n g t o t h e k i n d s o f t a s k s t o be p e r f o r m e d . (1)  M a i n l y , these t a s k s a r e :  pre-audit negotiations,  (2) r e v i e w  of i n t e r n a l c o n t r o l s ,  (3) r e t r i e v a l o f documents and d a t a , ( 4 ) a n a l y s i s o f documents and d a t a , (5) r e p o r t i n g , and (6)  miscellaneous.  Only n i n e t e e n  f i r m s completed t h i s q u e s t i o n .  The  r e s u l t i s not very r e p r e s e n t a t i v e since the p o p u l a t i o n i s too s m a l l .  Despite  t h i s , the approximate percentages of  v a r i o u s t a s k s a r e summarized on pages 48-50.  Table X I I  and X I I I g i v e t h e mean, median, mode, maximum and minimum percentages f o r v a r i o u s t a s k s i n u s i n g the c o n v e n t i o n a l manual a u d i t and i n u s i n g t h e package a u d i t r e s p e c t i v e l y T a b l e XIV shows the v a r i o u s s t a t i s t i c a l f i g u r e s f o r the d i f f e r e n c e s between t h e two t e c h n i q u e s .  Prom t a b l e XIV,  a t t e n t i o n i s drawn t o t h e p o i n t t h a t time saved from r e t r i e v a l o f documents and d a t a had been s w i t c h e d  to the  e  Table  X!I  STATISTICS OF RESPONSES TO THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT (IN PERCENTAGES)  Mean  Med ian  Mode  Review o f internal controls  26.5  2 0.6  20  Retrieval of documents and d a t a  29.2  26.8  Analysis of documents and d a t a  35.5  38.2  6.8  negotiations Mi s e e l l a n e o u s  Audit  Tasks  Reporting Pre-audit  Standard Deviation  MaxImum  M i n imum  Range  15.0  60  5  55  13.9  50  7  kO  10.5  50  10  hQ  2.3  0  12.5  kO  0  40  0.0  0.0  0  0.0  >0  0  0  1.9  0.3  0  7.1  31  0  31  CO  Table  XIII  STATISTICS OF RESPONSES TO THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE PACKAGE AUDIT (IN PERCENTAGES)  Audit  Standard Deviation  Mean  Med tan  Mode  Review o f internal controls  31.8  37.2  kO  20.2  75  2  73  Retrieval of documents and d a t a  21.7  15.3  5  20.2  78  5  73  Analysis of documents and d a t a  35.0  34.8  20  17.3  85  11  7k  Reporting  7.1  2.3  0  12.6  kO  0  kO  negotiations  1.0  0.6  0  20  0  20  M ? seellaneous  3.3  0.5  0  5k  0  5k  Pre-audit  Tasks  12. k  Max imum  Min imum  Range  Table  XIV  6  STATISTICS OF DIFFERENCES BETWEEN THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT AND PACKAGE AUDIT ( IN PERCENTAGES)  Audit  Tasks  Mean  Med i a n  Review o f controls  + 5.3  + 10.0  Retrieval of documents and d a t a  -7.5  -Ik.2  Analysis of documents and d a t a  -0.it  Report ing  Maximum  Min imum  2«*.7  + 45  -53  98  -20  25.8  + 56  -45  101  -0.5  0  18.2  • *5  -30  75  + 0.3  + 0.1  0  1.2  +5  0  5  negotiations  + 1.0  + 0.6  o  k.6  + 20  0  20  M i s e e l 1aneous  + 1A  + 0.2  0  5.3  + 23  0  23  internal  Pre-audit  Standa rd D e v i a t ion  Mode  0  P o s i t i v e f i g u r e s represent i n c r e a s e s . in p e r c e n t a g e o f time a l l o c a t i o n c h a n g i n g from manual a u d i t to package a u d i t . 1  when  Range  51 review of i n t e r n a l c o n t r o l .  T h i s i s because o f the c u r r e n t  emphasis o f i n t e r n a l c o n t r o l . EFFECT OE AP'S 01 AUDITORS AP's a i d a u d i t o r s i n v a r i o u s ways.  The more common  ones a r e : (A) I can do more a u d i t work i n t h e same amount o f t i m e . (B) I have g a i n e d p r o f e s s i o n a l independence i n the f i e l d of  EDP.  (C) I c a n use computers f o r much o f t h e c l e r i c a l  audit  work. (D) I can use s p e c i a l s e l e c t i o n and a n a l y s i s r o u t i n e s  with  ease. (E) I can c o n c e n t r a t e  on  exceptions.  (E) I can i n t e r f a c e w i t h computer f i l e s . (G-) I can q u i c k l y become " ' b i l i n g u a l " i n a u d i t i n g and (H) I do n o t have t o be a p r o f e s s i o n a l  EDP.  programmer.  The mean, mode and median o f the answers t o t h e e f f e c t s on a u d i t o r s a r e summarized by the t a b l e on page 52. The f i g u r e s i n t h e l a s t column, t h e numbers o f f i r m s r e p l y i n g , do n o t add up t o n i n e t y due t o the f a c t t h a t n o t all  statements apply to every f i r m . EFFECT ON EMPLOYMENT B u s i n e s s e n t i t i e s a r e p a r t o f t h e economic system.  A c c o u n t i n g f i r m s and f i r m s w i t h i n t e r n a l a u d i t departments are c o n c e r n e d about t h e s o c i a l i m p a c t o f u t i l i z i n g  audit  Table  XV  STATISTICS OF RESPONSES TO THE EFFECT OF AUDIT PACKAGES ON AUDITORS  Effects  Mean  Median  7  Mode  Numver o f Responses  I do n o t have to be a p r o f e s s i o n a l programmer  5.61  5.9  8  75  I can use computers f o r much o f the c l e r i c a l a u d i t work  3.69  3.4  2  77  3.95  4.0  5  76  become " b i l i n g u a l " i n a u d i t i n g and EDP  6.29  6.9  7  73  I can u s e s p e c i a l s e l e c t i o n a n a l y s i s r o u t i n e s w i t h ease  3.78  3.7  2  78  3.1*0  3.2  2  78  I can do more a u d i t work the same amount o f time  3.43  3.2  1  79  p r o f e s s i o n a l independence i n t h e f i e l d o f EDP  4.59  5.1  1  73  I can i n t e r f a c e w i t h I can q u i c k l y  and  computer f i l e s  I can c o n c e n t r a t e on e x c e p t i o n s in I have g a i n e d  "1" r e p r e s e n t s t h e most a p p e a l i n g ... and so on t i l l "8" the l e a s t .  to t h e a u d i t o r s ,  "2" the second/  53  packages.  I n r e c e n t y e a r s , p e o p l e , e s p e c i a l l y those i n  t r a d e u n i o n s , have p r o j e c t e d t h e image o f a u t o m a t i o n and o t h e r d a t a p r o c e s s i n g means as one o f t h e main c a u s e s f o r unemployment.  Some even s u g g e s t e d  s h o u l d he stopped 8  t h a t such  automation-  i n o r d e r t o p r e v e n t f u r t h e r unemployment  increase Table XVI and X V I I g i v e a summary o f t h e e f f e c t o f AP's upon t h e number o f a u d i t s t a f f .  The m a j o r i t y o f  f i r m s , whether p o s s e s s i n g an AP o r n o t , c o n s i d e r e d t h a t t h e r e w o u l d be no change i n employmnet.  Some even  c o n s i d e r e d an i n c r e a s e . SUMMARY A c c o r d i n g t o t h e s t u d y o f t h e v a r i o u s packages and t o g e t h e r w i t h t h e answers f r o m t h e p a r t i c i p a t i n g  firms,  " a u d i t i n g w i t h t h e computer", e s p e c i a l l y w i t h an a u d i t package, i s more e f f e c t i v e , more e f f i c i e n t , more  economical  and more b e n e f i c i a l t h a n " a u d i t i n g around t h e computer" i n the f o l l o w i n g ways: (1) I t p e r f o r m s a l o t o f c l e r i c a l work. (2) I t can do more i n l e s s  time.  (3) I t f a c i l i t a t e s r e c a l c u l a t i o n s , t e s t s and s a m p l i n g . ( 4 ) A more d e t a i l e d , more e x t e n s i v e s e a r c h i s p o s s i b l e and even t h e t o t a l p o p u l a t i o n can be t e s t e d .  W i l l i a m G. C a r l o s , "Automation I n Theory And P r a c t i c e , " B u s i n e s s T o p i c s (Autumn 1960), p. 7.  54  ( 5 ) More c o n f i d e n t - 1 0 0 % c h e c k i n g  i s p o s s i b l e (though i t  may h o t he e c o n o m i c a l ) w i t h fewer (human) e r r o r s . (6) I t a l l o w s t h e performance o f v a r i o u s f u n c t i o n s simultaneously. (7) I t a l l o w s a u d i t o r s t o c o n c e n t r a t e  more on i n t e r n a l  control. (8) Because o f i t s a b i l i t y exceptions  to review,  summarize and l i s t  i n a s h o r t t i m e , a u d i t o r s can conduct  a u d i t s on an e x c e p t i o n b a s i s . (9) I t e n a b l e s a u d i t o r s t o g a i n b e t t e r knowledge o f f i l e s and  operating  (10) I t i s more (11) I t permits  systems. unbiased.  t h e use o f a u d i t t e c h n i q u e s  not normally  f e a s i b l e i n a manual a u d i t i n g e n v i r o n m e n t . t h i s technique,  Use o f  a l o n g w i t h t h e speed o f t h e computer,  makes t h i s p r o c e d u r e c o n s i d e r a b l y more e f f e c t i v e  than  " a u d i t i n g around t h e computer" i n many s i t u a t i o n s . The for  advantages o f AP's o v e r s p e c i f i c programming  i n d i v i d u a l s i t u a t i o n include the f o l l o w i n g s :  ( 1 ) S i m p l i c i t y as a t r a i n i n g a i d . (2) One can q u i c k l y become " b i l i n g u a l " i n a u d i t i n g and ... EDP. (3) One c a n use s p e c i a l s e l e c t i o n s and a n a l y s e s w i t h ease. ( 4 ) One can g a i n p r o f e s s i o n a l independence from t h e f i e l d of EDP.  55 T a b l e XVI EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF ON AN. -AUDIT TEAM  Change In S t a f f  Firms W i t h AP's  Firms W i t h o u t AP's  Total  +50%  1  3.8%  .0  0.0%  1  1.7%  +25%  0  0.0%  1  3.0%  1  1.7%  0%  23  88.5%  15  75.8%  48  81.4%  -5%  1  3.8%  0'  0.0%  1  1.7%  -10%  0  0.0%  2  6.1%  2  3.4%  -15%  0  0.0%  1  3.0%  1  1.7%  -20%  0  0.0%  1  3.0%  1  1.7%  -25%  0  0.0%  1  3.0%  1  1.7%  -33%  0  0.0%  1  3.0%  1  1 .7%  -35%  1  3.8%  0  0.0%  1  1.7%  -60%  0  0.0%  1  3.0%  1  1.7%  26 100.0%  33  100.0%  TOTAL  59 100.0%  56 Table XVII EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OF THE WHOLE FIRM  Change In S t a f f  Firms W i t h AP's  Firms W i t h o u t AP's  Total  +40%  0  0.0%  1  3. 0%  1  1.7%  +20%  0  0.0%  1  3. 0%  1  1.7%  +1 5%  0  0.0%  1  3. 0%  1  1.7%  +10%  1  3.8%  1  3. 0%  2  3.4%  +2%  0  0.0%  1  3. 0%  1  1.7%  0%  21  80.8%  26  78. 8%  47  79.7%  -5%  2  7.7%  1  3. 0% .  3  5.1%  -10%  2  7.7%  0  0. 0%  2  3.4%  -60%  0  0.0%  1  3. 0%  1  1 .7%  26 100.0%  33  100.0%  TOTAL  59 100.0%  CHAPTER V F E A S I B I L I T Y , DESIRABILITY AND J U S T I F I A B I L I T Y OF AN AUDIT COMMAND LANGUAGE (ACL) The  s t u d y and a n a l y s i s show a number o f advantages  of a u d i t packages o v e r t h e o t h e r t e c h n i q u e s .  Although a  s p e c i f i c q u a n t i t a t i v e a n a l y s i s w i t h a c t u a l i n d e x e s t o show w h e t h e r an AP w o u l d he d e s i r a b l e i s n e c e s s a r y ,  the b e n e f i t s  d i s c u s s e d above a l l o w a q u a l i t a t i v e c o n c l u s i o n - t h a t i s , i t 'is worthwhile to audit computerized accounting  systems  w i t h a u d i t packages. T h i s c h a p t e r w i l l summarize t h e r e s p o n s e s w h i c h i n d i c a t e w h e t h e r , from t h e i r p r a c t i c a l p o i n t o f v i e w , i t i s w o r t h w h i l e t o d e v e l o p and p o s s e s s a package, and w h e t h e r it  i s f e a s i b l e , d e s i r a b l e and j u s t i f i a b l e t o d e v e l o p one  common g e n e r a l i z e d A u d i t Command Language. IS IT WORTHWHILE TO DEVELOP AN AP ? Out  o f t h e n i n e t y f i r m s p a r t i c i p a t i n g , t h e r e were  seventeen accounting  firms (Chartered  Accountant f i r m s ,  C e r t i f i e d P u b l i c A c c o u n t a n t f i r m s and G e n e r a l / P u b l i c Accountant f i r m s ) .  Only f i v e o f t h e s e f i r m s and t h i r t y s i x  of t h e o t h e r t y p e s o f companies ( l e s s t h a n 50% i n t o t a l ) responded t o t h i s q u e s t i o n .  The r e s p o n s e s t o t h i s a r e  tabulated i n table XVIII. T a b l e X I X c l a s s i f i e s t h e s e f o r t y one f i r m s i n a 57  58 Table XVIII RESPONSES OP FIRMS TO THE WORTHINESS OF DEVELOPING THEIR OWN AUDIT PACKAGES  Worthwhile  Types Of Firms  Not Worthwhile  Total  Accounting Firms  2  3  5  Other I n d u s t r i a l Firms  23  13  36  TOTAL  25  16  41  Table XIX RESPONSES TO THE WORTHINESS OF DEVELOPING THEIR OWN PACKAGES (BY SIZE)  Firms International Firms  Worthwhile  Not Worthwhile  12 29.3% 4 (75%) (25%)  9.8%  16 39.1% 7 17.1%  National Firms •  2 (30%)  5 (70%)  12.2%  Regional Firms  6 14.6% 3 (67%) (33%)  7.3%  9  Local Firms  5 12.2% 4 (55%) (45%)  9.8%  9 22.0%  39.1%  41 100.0%  TOTAL  25  4.9%  Total  61.0%  16  21..9%  59  d i f f e r e n t way.  They are r e - c l a s s i f i e d i n t o f o u r  categories:  (a) i n t e r n a t i o n a l f i r m s , (b)  n a t i o n a l f i r m s , (c) r e g i o n a l  f i r m s , and  I t i n d i c a t e s t h a t 75%  (d) l o c a l f i r m s .  i n t e r n a t i o n a l f i r m s and more t h a n t w o - t h i r d s firms considered own  packages.  (70%)  t h a t i t was  regional  However, the m a j o r i t y of the n a t i o n a l  of the f i r m s a r e  firms 60%  On t h e w h o l e , more t h a n  i n f a v o r of the  development.  c o u l d g a i n f u r t h e r i n s i g h t s "by s u m m a r i z i n g t h e i r  r e a s o n s f o r and  a g a i n s t the development.''  b r o u g h t out a g a i n s t  the development was  d e s i r e t o p u r c h a s e or r e n t a package. t h a t i t was not  of the  the  worthwhile to develop t h e i r  responded n e g a t i v e l y .  We  of  The main p o i n t their ability  One  and  f i r m commented  too c o s t l y a t p r e s e n t s i n c e most c l i e n t s were  o f such a s i z e t o w a r r a n t t h i s c o s t .  the f u t u r e , we  By l o o k i n g i n t o  c o u l d f o r e c a s t the need f o r an AP  .  Some  f i r m s , however, would p r e f e r to m o d i f y or adapt the  present  package u s e d by t h e i r p u b l i c a c c o u n t i n g  wrote  t h a t i t w o u l d not d e v e l o p t h e i r own f o r a s o f t w a r e f i r m t o do so. there  i s and w i l l be On  developing it  AP hut  This again  One  i t was  an AP c o n s i d e r e d  indicates that  are i n f a v o r  t h a t i t was  a l o t of b e n e f i t s .  The  pages  8-12.  of  a necessity followings  some of the comments from the p a r t i c i p a t i n g f i r m s :  See  worthwhile  such a need.  the o t h e r hand, t h o s e who  could provide  firms.  since are  60 ... You can i n c r e a s e y o u r a u d i t coverage w i t h o u t d r a s t i c a l l y i n c r e a s i n g s t a f f . New computer s o p h i s t i c a t i o n r e q u i r e s new a u d i t i n g methods ... ... because of the a b i l i t y t o do more work i n the same time and a l s o t o c o n c e n t r a t e on o n l y the e x c e p t i o n s f o u n d ... ... " a u d i t i n g around the computer" i s no l o n g e r adequate. AP i s one of s e v e r a l n e c e s s a r y t o o l s ... ... (a) a b i l i t y t o " a u d i t v i s i b l y " o t h e r departments more f r e q u e n t l y , (b) more freedom from c l e r i c a l t a s k s ... ... a c q u i r i n g and i m p l e m e n t i n g an a u d i t package w i l l ( 1 ) a s s i s t us i n b r i n g i n g own f i e l d a u d i t o r s c l o s e r to E l e c t r o n i c Data P r o c e s s i n g o p e r a t i o n s and, by a s s o c i a t i o n , t o more knowledge of t h i s i n c r e a s i n g l y - i m p o r t a n t f i e l d (2) f r e e own EDP a u d i t o r s from more p r o s a i c computer t a s k s and p e r m i t them t o a l l o t more time t o a n a l y s i s of i n t e r n a l program c o n t r o l s and s a f e g u a r d s ... The  above q u o t a t i o n s  summarize the b e n e f i t s  of  p  AP's  .  However, the c o s t has  r e t u r n s and  t o be weighed a g a i n s t  i t would be w o r t h l e s s  the c o s t i s u n r e a s o n a b l e .  One  the  t o d e v e l o p a system i f  f i r m made the f o l l o w i n g  comment: ... I t i s c e r t a i n l y w o r t h w h i l e t o d e v e l o p ... as you t h e n have the r i g h t s t o m o d i f y and i n c r e a s e i t s p o t e n t i a l . However, the c o s t s of development must be c a r e f u l l y weighed a g a i n s t the r e n t a l o r purchase of a v e n d o r package ... The  opinions  e x p r e s s e d , e x c e p t the c o s t  i n d i c a t e t h a t an AP w o u l d be b e n e f i c i a l . t o be the o n l y p r o b l e m .  See  previous  Pinancing  seems  Nonetheless, i t i s worthwhile  and n e c e s s a r y t o have AP's  benefits.  consideration,  as an a u d i t  c h a p t e r s ( I I I and  tool.  IV) f o r more  61 AUDIT COMMAND LANGUAGE ? Standardization f a c i l i t a t e s training, learning, m o d i f i c a t i o n and u n d e r s t a n d i n g . been s t a n d a r d i z e d . standardized.  Many t o o l s have  already  P r o c e d u r e s a r e t o a c e r t a i n degree  A u d i t s t a n d a r d s a r e s t i p u l a t e d and coded.  Now, we have t o c o n s i d e r whether i t i s d e s i r a b l e and j u s t i f i a b l e t o d e v e l o p one common c o m p u t e r i z e d a u d i t language  (ACL). The  response t o t h i s question  There were s e v e n t y - t h r e e  f i r m s (80%)  i s quite s a t i s f a c t o r y . answering.  Table XX  summarizes t h e answers and i t seems t h a t , a t f i r s t ACL  i s n o t d e s i r a b l e and j u s t i f i a b l e .  cannot be made a t t h i s p o i n t . considered  ACL u n d e s i r a b l e  50% p o s s e s s an AP. obsolete  glance,  However, a c o n c l u s i o n  Out o f t h e f o r t y f i r m s w h i c h  and u n j u s t i f i a b l e , more t h a n  To p r o t e c t t h e i r own package, from "being  and t o p r e v e n t a l o s s o f t h e i r market, t h e y a r e  u n w i l l i n g t o see t h e development o f any package w h i c h w o u l d he more e f f i c i e n t , more e f f e c t i v e and more b e n e f i c i a l t h a n t h e one t h e y a r e p o s s e s s i n g .  On t h e o t h e r hand, by  a n a l y s i n g t h e o t h e r group, more t h a n 50% o f those no AP were i n f a v o r o f ACL.  having  They s u g g e s t e d t h i s by r e a s o n s  o f s t a n d a r d i z a t i o n , s i m i l a r i t y o f most packages, ease o f a p p l i c a t i o n and s t a n d a r d i z e d  report.  To Look a t t h i s from a d i f f e r e n t a n g l e ( t a b l e X X I ) more s m a l l f i r m s ( r e g i o n a l and l o c a l ) were . . . w i l l i n g t o see :  such a development w h i l e most n a t i o n a l f i r m s were a g a i n s t  62 T a b l e XX RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OE THE DEVELOPMENT OE AN AUDIT COMMAND LANGUAGE (BY POSSESSION OE AN AP)  Types Of E i r m s  "YES" Answers  E i r m s w i t h AP's E i r m s W i t h o u t PA's TOTAL  "NO" Answers  Total  13  23  36  20  17  37  33  40  73  Table XXI RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OF THE DEVELOPMENT OE AN AUDIT COMMAND LANGUAGE (BY SIZE OF EIRMS)  •NO" Answers  "YES" Answers Types Of Eirms  With Without AP's AP's  Total  With Without AP's AP's  Total  7  7  14  10  7  17  0  2  2  10  3  13  Regional  3  6  .9  2  3  5  Local  3  5  8  1  4  5  TOTAL  13  20  33  23  17  40  International . National  63 t h i s development.  The i n t e r n a t i o n a l f i r m s a r e d i v i d e d .  The t a b l e s XX and XXI p r e s e n t a combined r e s p o n s e t o b o t h d e s i r a b i l i t y and j u s t i f i a b i l i t y . responded b o t h n e g a t i v e l y , negatively, follows  A f i r m c o u l d have  o r one p o s i t i v e l y and t h e o t h e r  or both p o s i t i v e l y .  A seperate a n a l y s i s  therefore. DESIRABILITY F i r m s r e s p o n d i n g t o t h i s q u e s t i o n d i d n o t comment  on t h e r e a s o n s f o r u n d e s i r a b i l i t y .  They m e r e l y s t a t e d why  i t was n o t f e a s i b l e , n o t p r a c t i c a b l e and/or n o t j u s t i f i a b l e t o d e v e l o p one.  On t h e o t h e r hand, t h i r t y - t w o out o f t h e  t h i r t y - t h r e e f i r m s w i t h a f f i r m a t i v e response d i d e x p l i c i t l y 3  s t a t e t h e i r reasons  .  The r e a s o n s were l a r g e l y i d e n t i c a l  to those c i t e d i n the p r e v i o u s s e c t i o n s .  Although  slightly  l e s s t h a n 50% ^ c o n s i d e r e d i t b o t h d e s i r a b l e and j u s t i f i a b l e by g i v i n g s p e c i f i c r e a s o n s f o r t h e i r p o s i t i o n , i t might be c o n c l u d e d t h a t AOL i s d e s i r a b l e , because  t h e r e were no  d e f i n i t e reasons f o r the u n d e s i r a b i l i t y . JUSTIFIABILITY The problem o f j u s t i f i a b i l i t y  and f e a s i b i l i t y ( o r  D e s i r a b l e . . • ;dbes n o t have t o be j u s t i f i a b l e f o r r e a s o n s such as c o s t and m a r k e t a b i l i t y . S i m i l a r l y , j u s t i f i a b l e does n o t h e c e s s a r i l y mean d e s i r a b l e due t o , for instance, competition. ^ See t a b l e s XX and X X I on page 62.  64 p r a c t i c a b i l i t y ) i s t o be c o n s i d e r e d and  now.  The arguments  o p i n i o n s e x p r e s s e d , b o t h f o r and a g a i n s t , a r e summarized  as f o l l o w s : FOR: (1) The a u d i t p r o f e s s i o n w o u l d t h e n have a n o t h e r body o f common knowledge g i v i n g i t more s t r e n g t h and independence. (2) D i f f e r e n c e o f v a r i o u s packages a r e m a i n l y manship".  i n "sales-  Thus i t seems t h a t a common l a n g u a g e , i f  f l e x i b l e enough, w o u l d serve a l l p u r p o s e s . (3) I t would a s s i s t i n t r a i n i n g o f s t a f f and s p r e a d u n d e r s t a n d i n g among a l l a c c o u n t a n t s . (4) S i m p l i f y programming a p p l i c a b l e t o d i v e r g e n t processing  data  companies' hardware and s o f t w a r e .  (5) Ease o f i m p l e m e n t a t i o n because t e r m i n o l o g y  would be  standardized. ( 6 ) S i m i l a r r a t i o n a l e t h a t prompted t h e use o f COBOL and FORTRAN as machine i n d e p e n d e n t l a n g u a g e s . (7) F o r t h e same r e a s o n s t h a t g e n e r a l computer programming was  standardized  i n COBOL, FORTRAN, e t c . , t h a t i s ,  b e t t e r c o m m u n i c a t i o n , p o r t a b i l i t y o f t r a i n i n g and experience  from one f i r m t o a n o t h e r , and from one AP  to another. (8) A u d i t s t a n d a r d s c a n o n l y be a p p l i e d u n i f o r m l y i f a l l a u d i t o r s have t h e same c a p a b i l i t i e s - a common a u d i t language i s one o f t h e s e  capabilities.  (9) When t h e a u d i t o r changes j o b s , he w i l l n o t have t o f o r c e h i m s e l f t o l e a r n new l a n g u a g e s , because o f t h i s  65 standardization. AGAINST: (1) V a r i e d a u d i t i n g p u r p o s e s - more AP's a l l o w u s e r t o s e l e c t the most a p p r o p r i a t e (2) D i f f e r e n c e s  one t o meet t h e i r needs.  i n audit philosophy  i s d i f f i c u l t to over-  come . (3) V a s t d i s p a r i t y i n t h e a v a i l a b l e f a c i l i t i e s and  personnel.  (4) There a r e t o o many machines and systems. (5) Cost i s t o o much - b e n e f i t s would n o t be w o r t h t h e monumental e f f o r t  required.  (6) Time t o d e v e l o p i s t o o l o n g . (7) Too many p e o p l e a r e i n v o l v e d t o come t o an agreement. (8) More t h a n one AP p r o v i d e s  competition  t h a t can improve  q u a l i t y o f packages. Since  t h e r e a s o n s f o r and a g a i n s t  the j u s t i f i a b i l i t y  of ACL a r e u n w e i g h t e d , i t i s h a r d t o come t o a c o n c l u s i o n on t h e i s s u e . could  Some o f t h e problems e n c o u n t e r e d w i t h AP's  j u s t i f y t h e l a r g e - s c a l e i m p l e m e n t a t i o n o f ACL.  instance, according  Por  t o one r e p l y , i t i s p o s s i b l e f o r more  t h a n one f i r m t o d e s i g n  a package:  ... From o u r e x p e r i e n c e i n d e v e l o p i n g amendments t o (name o f p a c k a g e ) , i t i s p o s s i b l e , i f d i f f i c u l t , f o r a number o f f i r m s t o produce a s p e c i f i c a t i o n v/hich v / i l l meet a l l t h e i r needs .. . I b e l i e v e t h a t some f i r m s a r e u n w i l l i n g t o change t o a new system f o r one o r more o f t h e f o l l o w i n g r e a s o n s : (1) t o o s a t i s f i e d w i t h t h e i r p r e s e n t package, (2) u n w i l l i n g o r d i f f i c u l t t o w r i t e o f f t h e c o s t o f t h e  66 p r e s e n t package, (3) u n w i l l i n g t o c o - o p e r a t e i n d e s i g n i n g and d e v e l o p i n g a new (4)  system,  and  p r e s t i g e - t h e i r package i s the b e s t and t h u s u n w i l l i n g t o share the s u c c e s s w i t h o t h e r s e i t h e r f o r commercial r e a s o n s o r f o r f e a r of l o s s o f l e a d e r s h i p i n t h i s a r e a . FEASIBILITY (PRACTICABILITY) I t may  he b o t h d e s i r a b l e and  p r a c t i c a b l e t o d e v e l o p ACL problem  j u s t i f i a b l e but not  at a large scale.  The main  seems t o l i e m a i n l y i n the money a l r e a d y i n v e s t e d  i n the p r e s e n t packages and i n i t s a m o r t i z a t i o n .  The  d e v e l o p e r s seem t o be a f r a i d of the l o s s o f a market f o r t h e i r packages.  However, t h e y o v e r l o o k t h a t no m a t t e r  how  e f f i c i e n t t h e i r p r e s e n t packages a r e , none o f them s a t i s f i e s a l l p r e s e n t and f u t u r e needs.  They w i l l sooner o r l a t e r  become o b s o l e t e o r r e q u i r e e x t e n s i v e amendments and provements.  im-  S i n c e e v e r y AP d e s i g n e r spends money on  s i m i l a r r e s e a r c h , I see g r e a t advantages  i n combining  t h e s e e f f o r t s , p e r s o n n e l , e x p e r t i s e and f u t u r e o u t l a y s t o d e v e l o p and implement one  s t a n d a r d i z e d package.  The  result  s h o u l d be much b e t t e r . There i s a n o t h e r p r a c t i c a l problem  encountered.  A l t h o u g h i t seems d i f f i c u l t a t p r e s e n t t o come t o a m u t u a l agreement on a l l f e a t u r e s o f the package, t h i s i s by no means i m p o s s i b l e .  T r u l y , t h i s would he more e f f i c i e n t  b e t t e r a c c o m p l i s h e d i f , as s u g g e s t e d by some f i r m s ,  and  this  67 w o u l d be c a r r i e d out t h r o u g h  i n s t i t u t e s such as u n i v e r s i t i e s ,  f o u n d a t i o n s , t h e Canadian I n s t i t u t e o f C h a r t e r e d the A m e r i c a n I n s t i t u t e o f C e r t i f i e d P u b l i c and  Accountants,  Accountants,  other accounting i n s t i t u t e s , e i t h e r alone or working  together. A n o t h e r problem i s t h e m a r k e t a b i l i t y . A f i r m a s k e d , "Who w o u l d buy i t ? "  T h i s q u e s t i o n was answered by  another  r e p l y , "The most l i k e l y market w o u l d be t h e s m a l l e r CA o f f i c e s who do n o t have t h e i r own systems o r t h e r e s o u r c e s to develop  one."  S m a l l and medium-sized f i r m s a r e  p o t e n t i a l u s e r s t o o . The l a r g e f i r m s w o u l d s h i f t t o adopt t h i s system as w e l l , p r o v i d e d i t was w e l l - d e s i g n e d , prehensive  and more  Competition  economical. s h o u l d n o t be a p r o b l e m .  has many b e n e f i t s t h a t i t c o u l d o v e r r i d e those competition.  com-  Standardization from  As m e n t i o n e d above, more money c o u l d be  spent i n c o n c e r t e d r e s e a r c h r e s u l t i n g i n a comprehensive and w e l l - r e s e a r c h e d d e s i g n t h a t c o u l d be implemented i n d i f f e r e n t language v e r s i o n s and modes o f o p e r a t i o n . From t h e i n f o r m a t i o n , o p i n i o n s and s u g g e s t i o n s gathered, scale.  i t seems d e s i r a b l e t o implement ACL a t a l a r g e  N e v e r t h e l e s s , a more d e t a i l e d q u a n t i t a t i v e a n a l y s i s  i n c l u d i n g t h e c o s t s o f development and t h e number o f personnel warrants  involved i s required.  Such an e x t e n s i v e  research  the f u l l co-operation of the f i r m s i n d i s c l o s i n g  r e l e v a n t i n f o r m a t i o n and o f t h e n a t i o n a l i n s t i t u t e s t o sponsor the e f f o r t s .  The b e n e f i t s seem w e l l w o r t h t h e c o s t s .  CHAPTER V I AUDIT COMMAND LANGUAGE INTRODUCTION C o n s i d e r a t i o n h a s been g i v e n t o t h e c o s t s and b e n e f i t s o f AP's, t h e e f f e c t s o f such a u t i l i z a t i o n , and the d e s i r a b i l i t y ,  j u s t i f i a b i l i t y and p o s s i b i l i t y o f  development, t h i s c h a p t e r of AP's.  d i s c u s s e s t h e source  languages  T h i s aims a t a i d i n g t h e d e s i g n and development  of t h e ACL ( o r s i m i l a r package s y s t e m s ) .  F i n a l l y , the  range o f a c t u a l and e x p e c t e d p e r i o d s o f development and implementation  w i l l be d i s c u s s e d . INPUTS 'COMMAND  Chapter I I has i n t r o d u c e d the d i f f e r e n t types o f source (1)  language ..  coding:  These a r e :  I t i s a language s i m i l a r t o an a b b r e v i a t e d E n g l i s h where t h e a u d i t o r needs t o do some programming.  I t i s s i m i l a r t o COBOL o r P L / l  but much s i m p l e r . (2) c h e c k l i s t / q u e s t i o n n a i r e : form.  I t i s a pre-designed  narrative  What t h e a u d i t o r needs t o do i s t o f i l l  i n t h e boxes.  S i m p l e and c l e a r e x p l a n a t i o n s  appear by t h e s i d e o f t h e s q u a r e s w h i c h r e q u i r e o n l y a l e t t e r o r a f i g u r e t o be i n s e r t e d . 68  69 (3) s t r u c t u r e d s e t s o f forms f o r s p e c i a l a u d i t I t i s somewhat- "between c o d i n g  functions:  and c h e c k l i s t .  Some w r i t i n g i s needed, "but n o t as much as coding.  Besides,  t h e forms a r e p r e - d e s i g n e d .  ( 4 ) i n t e r a c t i v e a u d i t command l a n g u a g e : coding  but provides  I t i s s i m i l a r to  a command s t r u c t u r e f o r  d i r e c t communication w i t h t h e machine v i a a d i s p l a y t e r m i n a l o r CTR. .-'Printed r e s u l t s c o u l d be o b t a i n e d  from a p r i n t e r .  Such i n t e r -  a c t i v e a u d i t i n g c a n "be more e f f i c i e n t d i r e c t communication i s p o s s i b l e .  since  The c o s t  1  does n o t have t o be h i g h e r (5) o t h e r s :  The answers t o t h i s c a n be summarized a s : (a) I t a l l depends upon t h e c a p a b i l i t i e s o f the u s e r s s i n c e a l l t y p e s above a r e n o t p r e f e r e n t i a l t o one a n o t h e r . (b) A c o m b i n a t i o n o f t h e f o u r t y p e s above would be p r e f e r r e d .  More p e o p l e p r e f e r c o d i n g XXII). it  or c h e c k l i s t (see t a b l e  I n t e r a c t i v e ACL i s l e s s welcome a t p r e s e n t  i s more advanced and l e s s known.  since  Table XXII gives a  summary o f t h e r e s p o n s e s o f p r e f e r e n c e  to various  input  command l a n g u a g e s . See H. J . W i l l , " I n t e r a c t i v e A u d i t i n g W i t h ACL," (Unpublished paper, the U n i v e r s i t y of B r i t i s h Columbia, June, 1 9 7 3 ) .  70 FEATURES Prom t h e i n f o r m a t i o n c o l l e c t e d , t h o s e r o u t i n e s t h a t w o u l d he needed i n t h e f u t u r e a r e t a b u l a t e d on pages 7 1 - 2 . When compared w i t h t a b l e V I I on pages 23-4', the f o l l o w i n g f e a t u r e s were c o n s i d e r e d  only  l e s s important i n  the f u t u r e a u d i t s : (1) f i e l d (2)  classification,  i n s e r t (add d a t a i n t o a f i l e ) ,  (3) b l o c k s e l e c t i o n , and (4)  punch  cards.  I n a d d i t i o n , t h e r e a r e o t h e r f e a t u r e s t h a t appear i n some p r e s e n t  packages b u t w h i c h a r e c u r r e n t l y  considered  by a m a j o r i t y ( 6 0 % o r more) as n o t e s s e n t i a l o r s i g n i f i c a n t Table XXII SUMMARY OP RESPONSES TO PREFERENCE TO VARIOUS INPUT COMMAND LANGUAGES  Preference Types Of I n p u t Command Languages  Numher  Coding  Percentages 35.6%  Checklist/Questionnaire  29  33.3%  S t r u c t u r e d S e t s o f Forms f o r Special Audit Functions  15  17.2%  I n t e r a c t i v e A u d i t Command Language  8  9.2%  Others  4  4.6%  71  Table X X I I I ROUTINES OE AUDIT PACKAGES THAT ARE CONSIDERED TO BE ESSENTIAL IN THE NEAR FUTURE  Features  Percentages  2  ACCESS (File) Creation/Generation/ Reformatting (Extraction) ( F i l e ) S e l e c t i o n (no reformatting)  83.33%  68.52%  (Input) F i l e E d i t i n g TESTING  81.48%  Aging Comparison o f F i e l d s Comparison o f F i l e s Table-lookup Include/Exclude Match/Merge Sequence C h e c k i n g REORGANIZATION Move ( T r a n s f e r d a t a from one f i e l d t o another) Reformat Sort  75.93%  88.89% 83.33% 79.63% 83.33% 92.59% 90.74%  77.78% 74.07% 87.04%  Stratification  77.78%  Summarize  92.59%  2  The f i g u r e s under t h i s column h e a d i n g a r e t h e number o f r e s p o n s e s t o t h e c o r r e s p o n d i n g i t e m s e x p r e s s e d as p e r c e n t a g e s o f t h e t o t a l number o f 5 4 r e s p o n d i n g f i r m s ,  Table X X I I I  (continued)  Features  Percentages  SELECTION & ANALYSIS The S e a r c h  72.22%  Systematic Sampling  88.89%  V a r i a b l e E s t i m a t i o n Sampling  68.52%  Attribute  75.95%  Sampling  CALCULATIONS Accumulation  90.74-%  Basic Mathematical Operations  88.89%  F o o t i n g & R e c o r d Counts  90.74%  R a t i o Computation  72.22%  Subtotal  79.63%  Maxima  61.11%  Minima  61.11%  Percentages  87.04%  Averages  79.63%  REPORTING Listing  81.48%  P r i n t Names & A d d r e s s e s  77.78%  Print  83.33%  T i t l e s & Headings  Positive Confirmation Letter  75.93%  Negative Confirmation L e t t e r  68.52%  Tabulate Reports  70.37%  See f o o t n o t e number 2 on p r e v i o u s page.  73 enough f o r t h e p e r f o r m a n c e o f a u d i t t o be i n c l u d e d .  These  are: REORGANIZATION: (1) Update  (59.3%)  SELECTION & ANALYSIS: (2) Sample E v a l u a t i o n (59.3%) (3) S p e c i a l S a m p l i n g P l a n (4) C o r r e l a t i o n A n a l y s i s  (44.4%) (44.4%)  (5) F r e q u e n c y D i s t r i b u t i o n s / H i s t o g r a m s (6) R e g r e s s i o n  A n a l y s i s (35.2%)  (7) X-Y C h a r t s  (24.1%)  (48.2%)  REPORTING: (8) Bank R e c o n c i l i a t i o n (42.6%) (9) Computer F l o w c h a r t i n g (10) G r a p h i c  (25.9%)  P r e s e n t a t i o n (29.6%)  (11) V i s u a l D i s p l a y (29.6%) (12) B a r C h a r t s  (25.9%)  OTHER FEATURES: (13) L a b e l C h e c k i n g ( i n v a r i o u s f i l e s ) (55.6%) (14) Program C h a r t i n g ( o f v a r i o u s c l i e n t s '  programs)  (25.9%) (15) T r a c i n g  (22.2%)  The f i g u r e s i n p a r e n t h e s e s a r e t h e numbers'of answers t o the c o r r e s p o n d i n g  items expressed  as p e r c e n t a g e s o f t h e  t o t a l number o f f i f t y - f o u r r e s p o n d i n g  firms.  74 TIME OE DEVELOPMENT AND IMPLEMENTATION T a b l e XXIV i n d i c a t e s t h a t t h e m a j o r i t y o f f i r m s w i t h an AP d e v e l o p e d and implemented t h e package i n a relatively  s h o r t t i m e , o f t e n l e s s t h a n two y e a r s .  These  packages a r e s t i l l under improvement: ;and t h e time i n d i c a t e d is  t h e „_span;; u n t i l i n i t i a l u t i l i z a t i o n o f t h e system f o r  auditing.  The t a b l e g i v e s a f e e l f o r t h e number o f y e a r s  needed f o r d e s i g n i n g a system and s h o u l d be o f i n t e r e s t to  future  design. VARIOUS PACKAGES  Some f i r m s commented t h a t a g e n e r a l package c o u l d hardly f u l f i l l  t h e needs o f a l l a u d i t f u n c t i o n s , e s p e c i a l l y  among v a r i o u s i n d u s t r i e s .  They s u g g e s t e d t h a t  separate  pakcages f o r v a r i o u s i n d u s t r i e s s h o u l d be d e v e l o p e d . was  a good i d e a .  However, t h e r e s h o u l d be common f e a t u r e s  among a u d i t i n g v a r i o u s i n d u s t r i e s , such as e d i t i n g , s u m m a r i z i n g , s o r t i n g and c a l c u l a t i n g . s h o u l d be c a p a b l e  This  aging,  The s u g g e s t e d ACL  o f h a n d l i n g a l l these common r o u t i n e s  f o r most o f t h e i n d u s t r i e s .  75 T a b l e XXIV SUMMARY OP RESPONSES TO THE TIME OP DEVELOPMENT AND IMPLEMENTATION  P i rms W i t h AP's  Time  Firms W i t h o u t AP's  Total  L e s s Than 1 Y e a r  16  36.4%  16  34.8%  32  35.6%  L e s s Than 2 Y e a r s  4  9.1%  7  15.2%  11  12.2%  L e s s Than 3 Y e a r s  1  2.3%  6  13.0%  7  7.8%  L e s s Than 4 Y e a r s  3  6.8%  2  4.0%  5  5.6%  More Than 4 Y e a r s  1  2.3%  12  26.1%  13  14.4%  No Answer  19  43.2%  3  6.5%  22  24.4%  44 100.0%  46  100.0%  90  100.0%  TOTAL  CHAPTER Y I I SUMMARY The  unwillingness  or i n a b i l i t y  o f some p a r t i c i p a t i n g  f i r m s t o d i s c l o s e some f a c t s f u l l y made some impossible.  analyses  A t any r a t e , some i m p o r t a n t c o n c l u s i o n s c a n  s t i l l be drawn as follows-.. I t i s b e n e f i c i a l and f e a s i b l e t o use AP's i n a u d i t i n g . The  o n l y c o n s i d e r a t i o n t h a t was l e f t out i n t h e a n a l y s i s  due  t o i n s u f f i c i e n t i n f o r m a t i o n i s the c o s t .  Cost  includes  b o t h p r e s e n t and f u t u r e , d i r e c t and i n d i r e c t . Other b e n e f i t s i n t h e use o f AP's i n a u d i t i n g  include  the s h o r t t r a i n i n g p e r i o d , t h e m e e t i n g o f f u t u r e needs, good s e r v i c e , t h e m e e t i n g o f t h e a u d i t s t a n d a r d s , tensive search,  more ex-  e r r o r m i n i m i z e d and c l e r i c a l time saved.  These b e n e f i t s do n o t n e c e s s a r i l y g u a r a n t e e t h e development. The  accounting  Demands f o r such systems have t o be  considered.  subsystems t h a t a r e e x p e c t e d t o be compu-  t e r i z e d i n t h e n e a r f u t u r e and t h a t c o u l d be a u d i t e d by means o f AP's a r e t a b u l a t e d  i n c h a p t e r ' I \ and i t seems t h e  needs w a r r a n t t h e development. I t has been c o n c l u d e d t h a t i t i s d e s i r a b l e and f e a s i b l e t o d e v e l o p ACL. research  Nevertheless,  a more q u a n t i t a t i v e  on t h e c o s t o f i m p l e m e n t i n g ACL a t a l a r g e  s h o u l d be c a r r i e d out.  scale  Such a recommended s t u d y might  affirm (or reject) this conclusion. 76  The s u g g e s t e d  research  77 depends upon t h e f u l l  c o - o p e r a t i o n o f t h e f i r m s and c o u l d  p r o b a b l y be b e s t a c c o m p l i s h e d i f sponsored by t h e v a r i o u s professional  institutes.  A d d i t i o n a l p r o t o t y p e r e s e a r c h seems w a r r a n t e d i f one i s w i l l i n g t o a c c e p t ACL as a v a l i d c o n c e p t .  These  1  have been summarized by W i l l  as f o l l o w s :  ( 1 ) F u r t h e r r e s e a r c h i n t o and i m p l e m e n t a t i o n o f a d d i t i o n a l B a s i c ACL commands: s a m p l i n g , r e p o r t i n g , m u l t i p l e  file  processing. (2) R e s e a r c h i n t o and i m p l e m e n t a t i o n o f Advanced ACL commands: f l e x i b l e r e p o r t i n g , c o n f i r m a t i o n s , r e g r e s s i o n and c o r r e l a t i o n a n a l y s e s . (3) F u r t h e r s t u d y and p o s s i b l e development o f s e p a r a t e d i a l o g u e s t y l e s , e.g. p r o m p t i n g , c h o i c e and t u t o r i a l . (4) A l t e r n a t i v e language  f o r m a t s and u s e r i n t e r f a c e s  ( s c a n n e r s ) f o r ACL: n a r r a t i v e - p r o c e d u r a l , q u e s t i o n n a i r e , f i x e d c o d i n g form, d e c i s i o n (5) I m p l e m e n t a t i o n  tables.  o f F u l l ACL commands: t e s t d a t a  generation, tracing, flow charting,  display.  (6) R e s e a r c h i n t o t h e i n t e r f a c e problem o f ACL w i t h l a r g e - s c a l e , i n t e g r a t e d d a t a bank  systems.  (7) R e s e a r c h i n t o t h e f e a s i b i l i t y o f i m p l e m e n t i n g ACL by means o f e x t e n s i b l e language  systems.  (8) D e s i g n s c h e d u l e development f o r l a r g e - s c a l e i m p l e m e n t a t i H. J . W i l l , P r o c e e d i n g s o f t h e Annual Conference of t h e Canadian I n f o r m a t i o n P r o c e s s i n g S o c i e t y , S e s s i o n '73, p. 83.  78 of (9)  ACL.  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" The I n t e r n a t i o n a l Review, V o l . 1, I s s u e 2 ( O c t o b e r 16,- 19727, pp. 33-5. McRae, T. W. The Impact o f Computers on A c c o u n t i n g . W i l e y & Sons L t d . , 1964.  John  Moore, M i c h a e l R., and R i c h a r d H. Yocom. "AY/Audit/ Management System: An I n f o r m a t i o n T o o l f o r A u d i t o r s and Managers," Computer A u d i t i n g i n the S e v e n t i e s , A r t h u r Young & Company, pp. 29-39. Moyer, C. A. " E a r l y Developments i n A m e r i c a n A u d i t i n g , " The A c c o u n t i n g Review, V o l . XXVI ( J a n u a r y 1951), pp.  3-8.  O a k l e y , A. " A n a l y s i s of P a c k a g e s , " R e p o r t of P r o c e e d i n g s Computer A u d i t Packages: I n f o r m a t i o n R e t r i e v a l & S p e c i a l i z e d A u d i t F e a t u r e s , paper 6, pp. 69-94. P o r t l a n d P l a c e , London: The B r i t i s h Computer S o c i e t y . Payne, S t a n l e y L. The A r t o f A s k i n g Q u e s t i o n s . Princeton, New J e r s e y : P r i n c e t o n U n i v e r s i t y P r e s s , 1951. P i x l e y , E. W. AUDITORS. Good & Son, 1889.  Fifth edition.  London: Henry  81 R a n d a l l , C l a r e n c e B., S a l l y ¥. Weimer, and Maynard S. Greenfield. Systems and P r o c e d u r e s f o r Automated A c c o u n t i n g . South-Western P u b l i s h i n g Company. Stone, W i l l i a r d E. " A n t e c e d e n t s o f t h e A c c o u n t i n g P r o f e s s i o n , " The A c c o u n t i n g Review, V o l . XLIV, No. 2 ( A p r i l , 1969), pp. 284-91. T y r a n , M i c h a e l R. C o m p u t e r i z e d A c c o u n t i n g Methods and C o n t r o l s . E n g l a n d C l i f f s , New J e r s e y : P r e n t i c e - H a l l Inc. Webb, R i c h a r d , "AUDASSIST," J o u r n a l o f A c c o u n t a n c y , November 1970. W i l l , Hartmut J . "Computer-Based A u d i t i n g - P a r t I , " The Canadian C h a r t e r e d A c c o u n t a n t , F e b r u a r y 1972, pp. 29-34. W i l l , Hartmut J . "Computer-Based A u d i t i n g - P a r t I I : Comparison o f G e n e r a l i z e d Computer A u d i t i n g Packages," The Canadian C h a r t e r e d A c c o u n t a n t , March 1972, pp. 32-44. W i l l , Hartmut J . " D e s i g n o f a G e n e r a l A u d i t Command Language ( A C L ) , " U n p u b l i s h e d P a p e r , U n i v e r s i t y o f B r i t i s h Columbia. W i l l , Hartmut J . " E v a l u a t i o n Methods f o r A u d i t Data Management Systems," U n p u b l i s h e d Paper, U n i v e r s i t y o f B r i t i s h C o l u m b i a , November 1971. W i l l , Hartmut J . "An I n t e r a c t i v e ACL ( A u d i t Command Language) P r o t o t y p e , " P r o c e e d i n g s : The A n n u a l C o n f e r e n c e of t h e C a n a d i a n I n f o r m a t i o n P r o c e s s i n g S o c i e t y , S e s s i o n '73, PP. ST 1^. W i l l , Harmut J . " I n t e r a c t i v e A u d i t i n g w i t h ACL," Unp u b l i s h e d Paper No. 202, F a c u l t y o f Commerce and Business A d m i n i s t r a t i o n , U n i v e r s i t y of B r i t i s h C o l u m b i a , June 1973.  82 APPENDIX A LIST OF PARTICIPATING FIRMS 1. A l e x a n d e r Grant & Company 2. American Hoechst C o r p o r a t i o n 3. A q u i t a i n e Company o f Canada L t d . 4. A r k w r i g h t - B o s t o n M a n u f a c t u r e r s M u t u a l  Insurance  Company . 5. A r t h u r Andersen & Company ( C h i c a g o ) 6. A r t h u r Andersen & Company  (Vancouver)  7. A r t h u r Young & Company 8. B. C. Hydro & Power A u t h o r i t y 9. B. C. Telephone  Company  10. The Bank o f Canada 11. B l u e B i r d Coach Company 12. B l u e C r o s s & B l u e S h i e l d o f V i r g i n i a , I n c . 13. B l u e C r o s s o f F l o r i d a , I n c . 14. B l u e C r o s s o f S o u t h e r n  California  15. Brown Company 16. Canada P o s t O f f i c e 17. Canadian  National  18. C e n t r a l P e n n s y l v a n n i a N a t i o n a l Bank 19. Chase B r a s s & Copper Company 20.. Che.vron Staridard L t d . 21. C i t y o f Vancouver 22. C i t y P a r i s h o f E a s t Baton Ronge 23. C o l o r a d o I n t e r s t a t e C o r p o r a t i o n  83 24. Computer R e s o u r c e s C o r p o r a t i o n 25. Computer S c i e n c e  Corporation  26. C o n l e y , McDonald, Sprague & Company 27. County o f Orange A u d i t o r - C o n t r o l l e r 28. D e l o i t t e , H a s k i n s & S e l l s 29. D e p o s i t o r s  Corporation  30. Du Pont o f Canada L t d . 31. Dunwoody & Company 32. Eastman Kodak Company 33. E r n s t & E r n s t 34. Esco C o r p o r a t i o n 35. E x c i s e Systems R e s e a r c h , Department o f N a t i o n a l Revenue, Customs & E x c i s e 36. Earm C r e d i t A d m i n i s t r a t i o n 37. F e d e r a l Home Loan Bank 38. F e d e r a l R e s e r v e Bank o f C h i c a g o 39. F e d e r a l R e s e r v e Bank o f New Y o r k 40. The F i r s t N a t i o n a l Bank o f Chicago 41. E l a t i r o n S e r v i c e Company 42. G i f f o r d - H i l l & Company 43. The Goodyear T i r e & Rubber Company o f Canada, L t d . 44. Gorden H a r r i n g t o n & Osoorn 45. Greb I n d u s t r i e s L t d . 46. Greenwood  Mills  47. G u l f O i l L t d .  48. H. E. ¥. 49. H o n e y w e l l L t d .  50.  Imperial O i l L t d .  51.  Informatics Inc.  52.  Information  53.  Interlake, Inc.  54.  The I n t e r n a t i o n a l N i c k e l Company o f Canada, L t d .  Science  5 5 . L y b r a n d , Ross B r o s . & Montgomery 56. M a c M i l l a n  Bloedel  57. M a s s a c h u s e t t s M u t u a l L i f e I n s u r a n c e  Company  58. McDonald C o r p o r a t i o n 59. M i l l s L a b o r a t o r i e s , I n c . 60. M u t u a l U n i t e d o f Omaha 6 1 . Nanaimo S c h o o l  Board  62. N a t i o n a l C i t y Bank o f C l e v e l a n d 63. N a v a l A u d i t S e r v i c e 64.  O f f i c e of the Auditor  65.  O n t a r i o Hydro  General  66. P a c c a r , I n c . 67.  People's  68.  The P o r t o f New Y o r k A u t h o r i t y  69.  P r i c e Waterhouse & Company (Vancouver)  70.  The P r o c t o r & Gamble Company o f Canada, L t d .  Savings  71. Republic Software  Bank  Products  72.  P u r i t a n L i f e Insurance  73.  Raymond Chabot, M a r t i n , Pape & A s s o c i a t e s  74.  Saskatchewan Power C o r p o r a t i o n  75.  S e a t t l e F i r s t N a t i o n a l Bank  76.  S e c u r i t y T r u s t Company  Company  77. Seidman & Seidman 78. S h e l l O i l Company 79. S t a t e S t r e e t Bank & T r u s t Company 80. S u n l i f e A s s u r a n c e Company o f Canada 81. Thome G-unn & Company 82. T i t l e I n s u r a n c e & T r u s t Company 83. Touche Ross & Company ( C h i c a g o ) 84. T w e n t i e t h C e n t u r y - F o x F i l m  Corporation  85. U n i o n Bank 86. U n i o n N a t i o n a l Bank o f P i t t s b u r g h 87. W a l t o n J o p l i n Langer & Company 88. Western U n i o n T e l e g r a p h Company 89. We^tinghouse  Electric  Corporation  90,. W o l f & Company 91. W o l v e r i n e W o r l d Wide, I n c . 92. Workmen's Compensation 93. 3M Company  Board  APPENDIX B  THE  QUESTIONNAIRE  Please check here I f you would l i k e a summary of results of the questionnaire to be mailed to you. NAME OF FIRM: Do you possess an audit package *? Name of the AP used:  Please c i r c l e the appropriate answer(s) f o r the following questions: (1)  Is your firm a/an: (a) (b) (c) (d)  (2)  In your opinion, what i s / a r e the i d e a l q u a l i f i c a t i o n ( s ) that enable(s) one to master the AP: (a) (b) (c) (d) (e)  (3)  i n t e r n a t i o n a l firm national firm regional firm l o c a l firm  basic programming knowledge basic data ( f i l e ) organization knowledge b a s i c computer knowledge other (please specify) : no idea  »•  Answer (a) ojr (b): (a) (b)  I f you posess-an AP, how long did i t take to develop and implement the present AP? I f you do not possess an AP, how long do you think i t would ti to develop and implement an AP to meet your needs? (1) (2) (3) (4) (5) (6)  less than less than less than less than more than no idea  1 2 3 A 4  year years years years years  Please specify the number of man - months:  man •  An audit package (AP) i s a system consisting of a set of generalized comp . programs f o r r e t r i e v i n g information from a computer - based accounting sy, with extended a n a l y t i c a l testing and reporting c a p a b i l i t i e s . I t can be used with complete independence from the c l i e n t ' s programs and any data r e t r i e v a l system used i n auditing i s included as w e l l .  88  Page 2.  (4)  Answer (a) or (b): (a) (b)  I f you use an AP, how much c l e r i c a l time i s being saved i n auditing with i t on the average? I f you do not use an AP, how much c l e r i c a l time do you think could be saved by using one? (1) (2) (3) (4) (5) (6)  (5)  none less than less than less than more than no idea  10% 25% 50% 50%  ^  Answer (a) or (b): (a) (b)  I f you use an AP, i n your opinion, which of the following t r a d i t i o n a l audit standards are met by using i t ? I f you do not use an AP, i n your opinion, which of the following t r a d i t i o n a l audit standards would be met by using one?  Personal/General Standards; (1) Audit by trained and p r o f i c i e n t auditors (2) Independence i n the auditor's mental a t t i t u d e and approach (3) Due care i n the performance of the auditor's work Standards of F i e l d Work; (4) (5) (6) (6)  I f you have used an AP, which a l t e r n a t i v e y i e l d s higher audit e f f i c i e n c y : (a) (b) (c)  (7)  Work being adequately - planned and supervised Proper study and evaluation of i n t e r n a l control S u f f i c i e n t competent e v i d e n t i a l matter obtained  auditing around the computer auditing with the AP both (a) & (b) are more less the same  Which of the following type of audit programming do you prefer: (a) Coding - a language s i m i l a r to an abbreviated English where the auditor needs to do some programming (b) Checklist/Questionnaire - f i l l i n g boxes on a pre - designed narrative form (c) Structured sets of forms f o r s p e c i a l audit functions (d) Interactive audit command language (e) Others (please s p e c i f y ) :  39 Page 3,  Please check or give the appropriate answer on the tables f o r each of the following questions: (8)  In the 1st column of the table on pages 8 & 9, give the approximate number of your current c l i e n t s * * i n the various i n d u s t r i e s .  (9)  In the 2nd column of the table on pages 8 & 9, give the approximate number of audit c l i e n t s * * i n the various industries that have an accounting system which can be audited by computers (e.g., punch card, paper tape and magnetic tape).  (10) In the 3rd,4th and 5th columns of the table on pages 8 & 9 give the approximatt number of c l i e n t s * * i n the industries i d e n t i f i e d that are audited i n the following ways: (a) (b) (c)  Generalized AP Special computer audit programs Audit around the computer  t i l ) In the 1st column of the table on page 10, indicate.the approximate percentages of your c l i e n t s * * accounting subsystems that have been computerized. 1  V v  (12) In the 2nd, 3rd and 4th columns of the table on page 10^ give the approximate percentages of the computerized accounting subsystems i d e n t i f i e d that are audited i n the following ways: ' (a) (b) (c)  Generalized AP Special computer audit programs Audit around the computer  v  (13) In the 5th column of the table on page 10, check. the various accounting subsystems that you think w i l l be computerized i n the next 2 to 5 years. (14) In the 6th column of the table on page IQ. check the various accounting subsystems that you think are, w i l l and/or should be audited by computerized audit packages. (15) I f you use an AP, check i n the 1st column of the table on pages 11, 12 & 13 the those various features that are included i n your present AP. (16) I f you possess an AP, and i f you plan to develop and improve i t , give i n the 2nd column of the table on pages 11, 12 & 13 the estimated approximate cost*** of developing and implementing the various a d d i t i o n a l features that are not included i n the present AP, but w i l l be implemented.  **  This implies s u b s i d i a r i e s , d i v i s i o n s , or departments for i n t e r n a l auditors.  *** The cost would include the salary paid to employees i n the study, design and implementation of the system, and any other expenditure incurred during the development and implementation stage.  90 Page 4. (17)  Answer (a) or (b): (a) (b)  (18)  If you possess an AP, check in the 3rd column of the table on pages 11, 12 & 13, those features that you think w i l l and/or should be included in future audit packages. If you do not possess an AP, and supposing you are going to develop and implement one, in the 3rd column of the.table on pages 11,. 12 & 13,' check those features' that would be Included as subsystems in the package.  Rank' the following statements about audit packages according' to their appeal to you ("1" for the most appealing, "2" for the second next, etc:): •  ,  I do not "have to be a professional programmer  •  '  I can use computers for much of the clerical audit work I can interface with computer f i l e s I can quickly become "bilingual" in auditing and  EDP  I can use special selection and analysis routines with ease I can concentrate on _^  (20)  :  I can do more audit work in the same amount of time '  (19)  exceptions  I have gained professional independence in the f i e l d of EDP  How many members of your audit staff have the following qualifications: (a)  basic programming knowledge  (b)  basic data (file) organization knowledge  (c)  basic computer knowledge  (d)  both (a) & (b)  (e)  both (a) & (c)  (f)  both (b) & (c)  (g)  a l l of the above  (h)  none of the above  .__  .  How many of your audit staff are: (a)  EDP "specialists" for internal control .. evaluation  (b)  EDP "specialists" for AP support  (c)  EDP "specialists" for both internal control . evaluation and for AP support  (d)  Programmers for special purpose audit programs  (e)  "General auditors" and users of audit packages  91 Page 5.  (21)  Answer (a) or (b): (a) (b)  (22)  (23)  {24)  I f you possess an AP, how much d i d i t cost*** approximately to develop and implement the present AP System?  $  I f you do not possess an AP, how much do you think i t would cost*** to develop and implement an AP?  $  Answer (a) or (b): (a)  I f you use an AP, do you think the use of the AP a f f e c t s the number of audit s t a f f ?  (b)  I f you do not use an AP, do you think that the use of an AP would a f f e c t the number of audit s t a f f ? (1)  of the whole firm  increase/decrease  (2)  of the t y p i c a l audit team  %  increase/ decrease  %  I f you possess an AP, on the average, f o r one to be able to master the use of currently a v a i l a b l e package, how many hours/days of t r a i n i n g i s required f o r : ^ (a)  a u n i v e r s i t y graduate without EDP knowledge  (b)  a u n i v e r s i t y graduate with EDP knowledge  (c)  others without EDP knowledge  (d)  others with EDP knowledge  I f you have used an AP, what i s the approximate percentage of the t o t a l audit time allocated to the various audit tasks when using the conventional MANUAL audit or the PACKAGE audit. MANUAL PACKAGE (a) Review of i n t e r n a l controls % % (b)  R e t r i e v a l of documents & data  %  %  (c)  Analysis of documents & data  %  %  (d)  Others  %  %  %  %  %  %  %  %  %  %  (please s p e c i f y ) :  *** The cost would include the salary paid to employees i n the study, design and implementation of the system, and any other expenditure incurred during the development and implementation stage.  92 Page 6.  (25)  Do you think that new audit standards are required f o r the use of AP?  (26)  I f you have used an AP, i n what way and to what extent would you consider the AP as more e f f e c t i v e than auditing around the computer?  (27)  I f you have used an AP, has the use of the AP affected the audit fees charged to the c l i e n t ? Please comment on the reason f o r and the degree of any change.  (28)  I f you do not possess an AP, do you think i t i s worthwhile to develop and implement an audit package?  93 Page 7.  (29)  At present, there are numerous audit packages a v a i l a b l e . Is i t desirable and j u s t i f i a b l e , i n your opinion, to develop and implement one single common computerized audit language? Please, state your reasons, pro or con.  (30)  Other comments and suggestions.  INDUSTRIES  .  Q.  Advertising Companies. . Banks Broadcasting Corporations Charitable Organizations Clubs Contractors & Construction  '  Companies Department Stores Finance & Trust Companies Governments Hospitals & Health Cares Hotels, Motels & Resorts, etc. Information Processing Corporations Insurance Companies Mining, O i l & Gas Producing , Companies  /  Newspapers & Publishing . Companies /  Professional Sports Public U t i l i t i e s Real Estate Companies Retail Trades Stockbrokers, Dealers & Investment Companies Theaters, Movies, etc. Transportation Companies Unions Universities & Educational Institutions  8  95 Page 9. Q. INDUSTRIES (cont'd) Wholesale Trades OTHERS (Please Specify)  Q. 8  Q. 9  (a)  10  (b)  (c)  ACCOUNTING SUBSYSTEMS  Q.ll  General Ledgers Cash (Receipts & Disbursements) Accounts Receivable Sales, B i l l i n g & Invoicing Inventory Accounts & Control Fixed Assets Depreciation & Amortization Repairs & Maintenance Purchasing Production & Cost Allocation Accounts Payable Payroll Pension Plans Loan Accounts Debentures & Bonds Fund Accounts Capital Accounts Share Registration Budgeting & Forecasting OTHERS:  (a)  97 Page FEATURES  Q. 15  Q. 16  ACCESS (File)  Creation/Generation/Reformatting (Extraction)  (File)  $ $  Selection (no Reformatting)  (Input) F i l e E d i t i n g  $  TESTING Aging  $  Comparison o f F i e l d s  $.  Comparison of F i l e s  $  Table - Lookup N Field  Classification  Include/Exclude Match/Merge Sequence Checking  $. $. $_ $_ $  REORGANIZATION Insert  (Add data into a f i l e )  Move (Transfer data from one f i e l d to another)  $.  $  Reformat  $.  Sort  $.  Stratification  $_  Summarize  $_  Update  $  (cont'd)  Q. 17  98 Page 12. FEATURES  Q.15  Q.16  SELECTION & ANALYSES The Search  $  Block Selection  $  Systematic Sampling  $  Variable Estimation Sampling  \$  A t t r i b u t e Sampling  $  Sample Evaluation  $  Special Sampling Plan  $  C o r r e l a t i o n Analysis  $  Frequency Distributions/Histograms  \  $  Regression Analysis  $  X - Y Charts  $  CALCULATIONS Accumulation  $  Basic Mathematical Operations  $  Footing & Record Counts  $  Ratio Computation  $  Subtotal  $  Maxima  $  Minima  $  Percentages  $  Averages  $  (cont'd)  Q.17  99 Page 13. FEATURES  Q.15  Q.16  REPORTING Bank R e c o n c i l i a t i o n  $  Computer Flowcharting  $  Graphic Presentation  $  L i s ting  $  P r i n t Names & Adresses  $  P r i n t T i t l e s & Headings  $  Punch Cards  $  P o s i t i v e Confirmation L e t t e r  $  Negative Confirmation L e t t e r  $  Tabulate Reports  $  V i s u a l Display  $  Bar Charts  $  OTHER FEATURES Label Checking ( i n various f i l e s ) Program Charting (of audit c l i e n t s ' $_  programs) $_  Tracing OTHERS $_ $_ $_ $_  $  Q.17  

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