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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., McGil l University, 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 thesis as conforming to the required 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 requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r agree t h a t permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . I t i s understood that copying or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l gain s h a l l not be allowed without my w r i t t e n permission. Department of Commerce & Business Administration The U n i v e r s i t y of B r i t i s h Columbia Vancouver 8, Canada Date Se-ptember 30, 1973. i i ABSTRACT The changing accounting environment and the i n n o v a t i o n of computer technology have a l t e r e d a u d i t techniques. C u r r e n t l y , more than t h i r t y packages are used by a u d i t o r s . In view of the s i m i l a r i t i e s , the "Audit Command Language" (ACL), aimed at combining and extending the f e a t u r e s of present packages, was developed. The M.B.A. t h e s i s r e s e a r c h presented here"focuses on a f e a s i b i l i t y study of a u d i t i n g w i t h a u d i t package systems and on the 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 approach was used and sets 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 to three hundred and one f i r m s of v a r i o u s s i z e s and i n d u s t r i e s throughout Canada and the Uni t e d S t a t e s of America. The t h e s i s presents a d i s c u s s i o n of the co s t s t h a t should he considered and the b e n e f i t s t h a t could be gained from the use of a u d i t packages (AP's). Other b e n e f i t s are dis c u s s e d as w e l l . I t can be concluded from the study t h a t there are many advantages i n the adoption of the systems. AP's are more e f f i c i e n t than other techniques i n a u d i t i n g EDP rec o r d s . I t i s d e s i r a b l e and f e a s i b l e to develop ACL provided that the' a c t u a l cost of developing and implementing i t does not exceed the expected b e n e f i t s and r e t u r n s . The optimum cost of ACL cannot be determined here because the average cost of developing a s i m i l a r package cannot be determined from t h i s study due to i n s u f f i c i e n t data. i i i F i n a l l y , some p r a c t i c a l problems may be encountered. Nonetheless, these are s o l v a b l e i n one way or another. In c o n c l u s i o n , i t should be f e a s i b l e t o develop ACL as the 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 . LIST OP CONTENTS Page ABSTRACT i i TABLE OF CONTENTS i v LIST OE TABLES v i i LIST OE FIGURES i x ACKNOWLEDGEMENT x Chapter I . INTRODUCTION 1 AUDITING 1 E v o l u t i o n of A u d i t i n g 2 A u d i t i n g EDP Records 4 Current 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 8 NEED EOR EMPIRICAL RESEARCH 8 Purpose 8 Scope & Sample 12 Returns 14 M o t i v a t i o n 15 SUMMARY 15 I I . GENERALIZED COMPUTERIZED AUDIT PACKAGES 16 AUDIT PACKAGES 16 Present Packages 17 Components 17 Functions 22 i v V Chapter Page SUMMARY 23 I I I . COST-BENEFIT ANALYSIS 26 INTRODUCTION 26 COSTS 26 D i r e c t Costs 26 I n d i r e c t Costs 28 Summary 29 BENEFITS 29 Future Cost Reduction 29 Higher E f f i c i e n c y 30 R e l i a b i l i t y 34 Ease In Input 34 E f f e c t i v e Reporting 35 Improved Human R e l a t i o n s 35 SUMMARY 37 IV. ANALYSIS - CONTINUED 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 V. FEASIBILITY, DESIRABILITY AND JUSTIFIABILITY OF AN AUDIT COMMAND LANGUAGE (ACL) 57 IS IT WORTHWHILE TO DEVELOP AN AP ? 57 v i Chapter Page AUDIT COMMAND LANGUAGE ? 61 DESIRABILITY 63 JUSTIFIABILITY 63 FEASIBILITY (PRACTICABILITY) 66 VI. AUDIT COMMAND LANGUAGE 68 INTRODUCTION 68 INPUT COMMAND 68 FEATURES 70 TIME OE DEVELOPMENT AND IMPLEMENTATION .... 74 VARIOUS PACKAGES 74 V I I . 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 v i i LIST OP TABLES Table Page I . STATED AUDIT OBJECTIVES AND EXTENT OE VERIFICATION UP TO 1960 5 I I . AN. AVERAGE PERCENTAGE OE COMPUTERIZED ACCOUNTING SUBSYSTEMS 9 I I I . SUMMARIZATION OE RESPONSES TO THE COMPUTERIZATION OE ACCOUNTING SUBSYSTEMS IN THE NEXT 2 TO 5 YEARS 10 IV. SUMMARIZATION OF RESPONSES TO THE AUDIT BY COMPUTERIZED AUDIT PACKAGES 11 V. BREAKDOWN OE FIRMS BY INDUSTRIES 13 VI . LIST OF AVAILABLE AUDIT PACKAGES 18 V I I . THE MOST COMMON ROUTINES OE AUDIT PACKAGES. 23 V I I I . SUMMARY OF THE RESPONSES TO THE PERCENTAGE OE TIME SAVED BY AUDITING WITH AN AP 31 IX. RESPONSES OE VARIOUS TYPES OE FIRMS TO THE COMPARISON OF EFFICIENCY OF. VARIOUS AUDIT TECHNIQUES 33 X. RESPONSES TO MEET VARIOUS AUDIT STANDARDS . 44 XI. SUMMARY OE FIRMS RESPONDING TO THE REQUIREMENT OF NEW STANDARDS 45 X I I . STATISTICS OF RESPONSES TO THE ALLOCATION . OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT (IN PERCENTAGES) 48 X I I I . STATISTICS OF RESPONSES TO THE ALLOCATION OF VARIOUS AUDIT TASKS WHEN USING THE PACKAGE AUDIT (IN PERCENTAGE) 49 XIV. STATISTICS OE DIFFERENCES BETWEEN THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT AND PACKAGE AUDIT (IN PERCENTAGES) 50 XV. STATISTICS OF RESPONSES TO THE EFFECT OP AUDIT PACKAGES ON AUDITORS 52 XVI. EFFECT OP AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OE AN AUDIT TEAM 55 v i i i Table Page XVII. EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OF THE WHOLE FIRM 56 XVIII.' RESPONSES OF FIRMS TO THE WORTHINESS OF DEVELOPING THEIR OWN AUDIT PACKAGES 58 XIX. RESPONSES TO THE WORTHINESS OF DEVELOPING THEIR OWN PACKAGES (BY SIZE) 58 XX. RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OF THE DEVELOPMENT OF AN AUDIT COMMAND LANGUAGE (BY POSSESSION OF AN AP) 62 XXI. RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OF THE DEVELOPMENT OF AN AUDIT COMMAND LANGUAGE (BY SIZE OF FIRMS) 62 XXII. SUMMARY OF RESPONSES TO PREFERENCE TO VARIOUS INPUT COMMAND LANGUAGES 70 X X I I I . ROUTINES OF AUDIT PACKAGES THAT ARE CONSIDERED TO BE ESSENTIAL IN THE NEAR FUTURE 71 XXIV. SUMMARY OF RESPONSES TO THE TIME OF DEVELOPMENT AND IMPLEMENTATION 75 i x LIST FIGURES Figure Page 1. TWO TECHNIQUES IN AUDITING EDP RECORDS 7 2. A SIMPLIFIED DIAGRAM OF THE GENERAL PROCEDURE OF A COMPUTERIZED AUDIT PACKAGE 21 ACKNOWLEDGEMENT x The w r i t e r would l i k e to acknowledge the co-op e r a t i o n of the p a r t i c i p a t i n g f i r m s (see Appendix A) which made t h i s study f e a s i b l e . The w r i t e r i s a l s o deeply indebted to t h e i r suggestions and comments. The expert advice from Dr. M. Ace of the U n i v e r s i t y of B r i t i s h Columbia, i n the design of the questionnaire,' and the a d d i t i o n a l a s s i s t a n c e of Dr. H. J . W i l l of the U n i v e r s i t y of B r i t i s h Columbia and chairman of t h i s t h e s i s committee, are g r a t e f u l l y acknowledged. 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 to A r t h u r Andersen & Co. f o r i t s A r t h u r Andersen Grant which provided funds f o r the 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 the p r o j e c t . CHAPTER I INTRODUCTION This chapter g i v e s 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 trends of 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 of 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 out-l i n e d as w e l l . Chapter I I b r i e f l y d e s c r i b e s a u d i t packages (AP's). 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 c o n c l u s i o n s concerning the v a r i o u s aspects of the packages i s discussed i n chapters I I I and IV. The e f f i c i e n c y , e f f e c t i v e n e s s , 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 f e a s i b i l i t y of an Aud i t Command Language (ACL) i s presented i n chapter V, w h i l e chpater VI summarizes the f e a t u r e s t h a t should be i n c l u d e d i n f u t u r e developments and chapter V I I i s a summary chapter. AUDITING The word AUDIT o r i g i n a t e s from the L a t i n word aud i t u s meaning "a formal or o f f i c i a l examination and i v e r i f i c a t i o n of books of accounts ..." . The term has f u r t h e r been extended to i n c l u d e the "examination of 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 of the E n g l i s h Language,  Unabridged ( S p r i n g f i e l d , Massachusetts: G & C, Meriram Co. P u b l i s h e r s , 1965). 1 2 records to a s c e r t a i n whether they c o r r e c t l y r e c o r d the f a c t s ... extends the usage to statements prepared as 2 summaries of records ..." . Nowadays, a u d i t i n g has become " a branch of accounting t h a t deals w i t h the examination and v e r i f i c a t i o n of accounts or books of accounts 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 Act and Amending Act", 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 of the shareholders, a u d i t o r s i n s p e c t and examine the books i n order to express an o b j e c t i v e judgement and unbiased 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 than l e g a l requirements, the v a r i o u s Canadian Stock 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 statements f o r l i s t i n g purposes. Chartered banks, country banks, c r e d i t o r s and 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 statements t h a t are reviewed and s c r u t i n i z e d by a p r o f e s s i o n a l a u d i t o r . 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 by-product of accounting. The f i r s t Committee on Terminology, Accounting Terminology  B u l l e t i n s , No. ,1., Review and Resume, American I n s t i t u t e of Accountants (Madison Ave., N.Y., TE, N.Y.). 3 „ Gove, op. c i t . ^ See S e c t i o n 124 of Canada Corporations Act. 3 5 appearance of a u d i t i n g can be dated back to 3600 B.C. when the e a r l i e s t r e f e r e n c e to record-keeping was found as w e l l ^. Accounting can be t r a c e d back to the time of 7 a n c i e n t B a b y l o n i a and Eygpt and as f a r back as Yu of the H s i a dynasty (2260 B.C. - 1766 B.C.) of China 8 . By th a t time, the l i m i t e d amount of 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 examination of accounts f e a s i b l e . A f t e r the t h i r t e e n t h century, when the double-entry book-9 keeping system o r i g i n a t e d , the accounting technique g r a d u a l l y developed over time to meet the contemporary equipment and machines. These changes were a l s o caused by a s e r i e s of economic events 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 trade 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 both i n the s t a t e d o b j e c t i v e and the extent of W i l l i a r d E. Stone, "Antecedents of the Accounting P r o f e s s i o n , " The Accounting 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 Accounting i n China During the Chou Dynasty (1122 B.C. - 256 B.C.)," J o u r n a l  of Accounting Research, 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 (ed), Studies  i n the H i s t o r y of Accounting (Homewood, I l l i n o i s : R i chard D. I r w i n , Inc., 1965), p . ' l . 4 10 v e r i f i c a t i o n . Brown made a study on these gradual changes up to m i d - s i x t i e s of the t w e n t i e t h century. H i s r e s u l t i s presented i n t a b l e I . The e a r l i e s t a u d i t s , l o n g before the s i x t e e n t h century, were aimed at p r e v e n t i o n and d e t e c t i o n of 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 c o n t r o l . Rules were not set by governments on the n e c e s s i t y of a t t e s t i n g . C r i t e r i a , standards and procedures were not e s t a b l i s h e d . There were no d e f i n i t e r u l e s or steps to f o l l o w . I t was not u n t i l the second day of November 1862 t h a t the f i r s t E n g l i s h Companies Act 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 to r e a l i z e i n the e a r l y t w e n t i e t h century t h a t c e r t a i n techniques such as t e s t i n g and emphasis on the review of i n t e r n a l c o n t r o l have to be employed. A f t e r World War I I , the human data p r o c e s s i n g c a p a c i t y was f u r t h e r extended by the i n v e n t i o n of computer hardware. I n t e g r a t e d accounting systems are r e p l a c i n g the t r a d i t i o n a l manual double-entry system. A u d i t i n g i s t h e r e f o r e complicated by the development of E l e c t r o n i c Data P r o c e s s i n g (EDP) and computerized Management Information Systems (MIS's). A u d i t i n g EDP Records The use of EDP i n accounting caused the development R. Gene Brown, "Changing A u d i t O b j e c t i v e s and Techniques," The Accounting Review, V o l . XXXVII, No. 4 (1962), pp. 696-703. 5 Table I 1 1 STATED AUDIT OBJECTIVES AND EXTENT OP VERIFICATION UP TO 1960 Importance Extent of of I n t e r n a l P e r i o d Stated Audit O b j e c t i v e s V e r i f i c a t i o n C o n t r o l Before 1500 1500 to 1850 1850 to 1905 1905 to 1935 1933 to 1940 1940 to 1960 D e t e c t i o n of f r a u d D e t e c t i o n of f r a u d D e t e c t i o n of f r a u d and d e t e c t i o n of c l e r i c a l e r r o r Determination of f a i r n e s s of r e p o r t e d 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 of f r a u d and e r r o r Determination of f a i r n e s s of re p o r t e d 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 of f r a u d and e r r o r Determination of f a i r n e s s of r e p o r t e d f i n a n c i a l p o s i t i o n D e t a i l e d D e t a i l e d Some t e s t s , p r i m a r i l y d e t a i l e d D e t a i l e d and t e s t i n g T e s t i n g T e s t i n g Not recognised Not recognised Not recognised S l i g h t r e c o g n i t i o n Awakening of i n t e r e s t S u b s t a n t i a l emphasis Brown, i b i d . , p. 696. 6 of 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 or incapable of being c a r r i e d out by the p r o f e s s i o n . The records s t o r e d on magnetic tapes, paper tapes or d i s k s can h a r d l y be under-stood and read without the a i d of the computer. At present, there are mainly two complementary techniques f o r a u d i t i n g EDP r e c o r d s , namely ( 1 ) " a u d i t i n g around the 1 2 computer", and (2) " a u d i t i n g w i t h the computer" In " a u d i t i n g around the computer", the a u d i t o r performs the a u d i t without d i r e c t l y employing the computer. He asks a s s i s t a n c e from programmers or EDP experts i n the r e t r i e v a l of r e c o r d s , and he mainly works w i t h the r e p o r t s and/or data t h a t are computer-generated by the c l i e n t or h i s a s s i s t a n t s . However, not a l l a u d i t o r s depend upon the programmers or EDP experts s i n c e some of them are able to do the programming themselves. On the other 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 which a i d s h i s a u d i t i n g . He works d i r e c t l y w i t h the s t o r e d data. Hence, the main d i f f e r e n c e of the two techniques l i e s i n the sources of data to be s c r u t i n i z e d . Secondary sources 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 primary sources are obtained and reviewed i n the other technique;. Pigure 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 techniques as " a u d i t i n g without the computer" and " a u d i t i n g w i t h the computer". Computerized Accounting Records 1 Computer Hardware Accounting Data/Reports J 4 1 R e p o r t s / F i n a n c i a l Statements_ ^ AUDITOR i 1 Users of Accounting Information A u d i t Report J (1 ) "Audit Around The Computer" fj j? R e t r i e v a l . [ I A n a l y s i s H Programs 1 Computer Hardware 1 R e p o r t s / P i n a n c i a l Statements AUDITOR i 1 Users of Accounting Information A u d i t Report 1 (2) "Audit With The Computer 1 Figure 1 TWO TECHNIQUES IN AUDITING EDP RECORDS 8 two techniques. Current 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 According to 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 study, the computer has been u t i l i z e d mostly f o r such accounting subsystems as general l e d g e r s , cash ( r e c e i p t s and disbursements), accounts r e c e i v a b l e , s a l e s , b i l l i n g and i n v o i c i n g , i n v e n t o r y and accounts payable (see t a b l e I I ) . Furthermore, most of the f i r m s p r e d i c t e d that there would 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. Many of these subsystems are to be computerized i n the next two to f i v e years (see t a b l e I I I ) . This growth should enlarge the adoption of a u d i t packages. According to 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 of AP's to most of these accounting subsystems (see t a b l e I V ) . In other words, there e x i s t s a need and demand f o r 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 of computer technology and i t s f a s t development i n terms of software and hardware have broadened human c a p a c i t i e s . Many people are a f f e c t e d . Business t r a n s a c t i o n s and r e c o r d i n g s are i n f l u e n c e d . Management i n f o r m a t i o n systems are changing as w e l l . To keep pace Table I I AN AVERAGE PERCENTAGE OP COMPUTERIZED ACCOUNTING SUBSYSTEMS Accounting Subsystems Percentages General Ledgers 55.7% Cash ( r e c e i p t s & disbursements) 54.4% Accounts Receivable 63.9% S a l e s , B i l l i n g & I n v o i c i n g 54.5% Inventory Accounts & C o n t r o l 51.8% F i x e d Assets 48.3% D e p r e c i a t i o n & A m o r t i z a t i o n 40.5% Repairs & Maintenance 21.9% Purchasing 24.8% P r o d u c t i o n & Cost A l l o c a t i o n 28.4% Accounts Payable 55.8% P a y r o l l 86.2% Pension Plans 43.9% Loan Accounts 29.8% Debentures & Bonds 20.2% Fund Accounts 14.3% C a p i t a l Accounts 25.3% Share R e g i s t r a t i o n 27.2% Budgeting & F o r e c a s t i n g 41.1% Reports & C o n t r o l 2.4% J o u r n a l 2.9% A n a l y s i s 1.2% M i s c e l l a n e o u s 3.6% The f i g u r e s under t h i s column heading are the numbers of responses to the corresponding subsystems expressed as percentages of the t o t a l number of 34 answers by the p a r t i c i p a t i n g and responding 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 Accounting Subsystems Percentages General Ledgers 96.6% Cash ( r e c e i p t s & disbursements) 89.8% Accounts Receivable 84.8% S a l e s , B i l l i n g & I n v o i c i n g 79.7% Inventory Accounts & C o n t r o l 86.4% F i x e d Assets 88.1% D e p r e c i a t i o n & A m o r t i z a t i o n 83.0% Repairs & Maintenance 61 .0% Purchasing 76.3% P r o d u c t i o n & Cost A l l o c a t i o n 76.3% Accounts Payable 84.8% P a y r o l l 96.6% Pension Plans 67.8% Loan Accounts 61.0% Debentures & Bonds 45.8% Fund Accounts 49 .2% C a p i t a l Accounts 5 2 . 5 % Share R e g i s t r a t i o n 4 4 i 1 % Budgeting & F o r e c a s t i n g 81 .4% Deposit -3.4% Trust 1.7% Reports & C o n t r o l 1.7% J o u r n a l 1.7% A n a l y s i s 1.7% M i s c e l l a n e o u s 6.8% The f i g u r e s under t h i s column heading are the numbers of responses to the corresponding subsystems expressed as percentages of the- t o t a l number of 59 answers by the p a r t i c i p a t i n g and responding f i r m s . 11 Table IV SUMMARIZATION OF RESPONSES TO THE AUDIT BY COMPUTERIZED AUDIT PACKAGES Accounting Subsystems Percentages General Ledgers 72.9% Cash ( r e c e i p t s & disbursements) 77.1% Accounts Receivable 83.3% S a l e s , B i l l i n g & I n v o i c i n g 75.0% Inventory Accounts & C o n t r o l 83.3% F i x e d Assets 77.1% D e p r e c i a t i o n & A m o r t i z a t i o n 70.8% Repairs & Maintenance 45.8% Purchasing 60.4% P r o d u c t i o n & Cost A l l o c a t i o n 58.3% Accounts Payable 83.3% P a y r o l l _ 95.8% Pension Plans 58.3% Loan Accounts 54.2% Debentures & Bonds . 39.6% Fund Accounts 41 .7% C a p i t a l Accounts 43.8% Share R e g i s t r a t i o n 35.4% Budgeting & F o r e c a s t i n g 52.1% Deposit 2.1% J o u r n a l ; 2.1% Mi s c e l l a n e o u s 10.4% The f i g u r e s under t h i s column heading are the numbers of responding f i r m s to the corresponding sub-systems expressed as percentages of the t o t a l number of 48 answers by the p a r t i c i p a t i n g and responding 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 of a u d i t packages. The i d e a of Dr. H. J . W i l l of the U n i v e r s i t y of B r i t i s h Columbia i n developing a g e n e r a l i z e d ACL motivated me to 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 f e a s i b i l i t y 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 i t s e l f . Many times, problems which are encountered only i n p r a c t i c e , would h a r d l y be considered i n theory. To study the f e a s i b i l i t y , one of the best methods i s the e m p i r i c a l approach. In t h i s way, opinions and suggestions of those who are 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-based a u d i t i n g can be obtained. Scope & Sample Three hundred and one sets 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 to f i r m s a l l over Canada and the United S t a t e s of America. The name l i s t was obtained from p a r t i c i p a n t s of seminars of "computer-based a u d i t i n g " (or s i m i l a r seminars) 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 . The l i s t 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 s m a l l accountant f i r m s (Chartered Accountants, C e r t i f i e d P u b l i c Accountants and C e r t i f i e d General Accountants) and f i r m s of v a r i o u s s i z e s from other i n d u s t r i e s , a l l of which showed great i n t e r e s t i n computer-based a u d i t i n g concepts and techniques. A breakdown of 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 16 BREAKDOWN FO FIRMS BY INDUSTRIES I n d u s t r i e s Outgoing Returned Bank, t r u s t & f i n a n c e companies 36 14 Chemical i n d u s t r y 9 2 Data P r o c e s s i n g 9 6 E d u c a t i o n a l 4 1 Energy 9 1 General d i v e r s i f i e d i n d u s t r y 21 3 Governments, govern-mental agencies 15 8 Heal t h s c i e n c e , h o s p i t a l s & l a b o r a t o r i e s 8 1 Insurance 13 6 Manufacturing: General 12 4 S p e c i f i c _2 14 0 4 Mining & o i l : Ferrous metal 2 1 Non-ferrous metal 4 2 Petroleum 9 15 4 7 T r a n s p o r t a t i o n & communication 7 3 U t i l i t i e s 5 4 Others ( r e s t a u r a n t s , f i l m & e n t e r -tainments, e t c . ) 40 15 TOTAL NON-ACCOUNTING FIRMS 205 75 Accounting f i r m s 96 18 TOTAL 301 93 Firms may belong to more than one c l a s s , f o r example, a chemical i n d u s t r i a l f i r m may belong to a manufacturing f i r m , "but i s only c l a s s i f i e d as a chemical i n d u s t r i a l f i r m . 14 Returns There were n i n e t y three respondents of which only n i n e t y c o u l d he analysed because of l a c k of data contained i n the other three r e p l i e s . The breakdown i n t o i n d u s t r i e s of the n i n e t y three f i r m s i s a l s o presented i n t a b l e V (on previous page). A l s o , a c c o r d i n g to the i n f o r m a t i o n provided, they 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 types of f i r m s by t h e i r s i z e s and the 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 42 ( 46.6%) N a t i o n a l Firms 18 ( 20.0%) Regional Firms 15 ( 16.7%) L o c a l Firms 15 ( 16.7%) TOTAL 90(100.0%) S e v e r a l questions were not completely answered and co n c l u s i o n s from or summarization of these questions would thus be m i s l e a d i n g . Such questions w i t h i n s u f f i c i e n t data i n c l u d e questions e i g h t , n i n e , ten, nineteen and twenty (see Appendix B ) . The f i r s t three of the above numbered questions intended to show how each i n d u s t r y stood among other i n d u s t r i e s i n computer-based accounting systems and how f a r they 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 techniques. They v/ere a l s o intended to counter-check other q u e s t i o n s . Questions nineteen and twenty asked the f i r m s to give the number of t h e i r personnel having 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 intended to compare w i t h those numbers given by f i r m s without AP's. U n f o r t u n a t e l y , many d i d not submit answers o r they gave i n a p p r o p r i a t e answers. 15 . M o t i v a t i o n During the whole process of data 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 the r e p o r t ( t h e s i s ) , a l l data were kept c o n f i d e n t i a l . This c o n f i d e n t i a l i t y was s t a t e d i n the i n t r o d u c t o r y l e t t e r to the f i r m s to encourage more p a r t i c i p a t i o n . The q u e s t i o n n a i r e s w i l l be destroyed a f t e r the completion of the t h e s i s . For reference purposes, a l i s t of 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 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 to those i n t e r e s t e d i n them. SUMMARY With the gradual e v o l u t i o n of accounting systems, a u d i t i n g techniques are changing. 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 the l a r g e amount of data s t o r e d . In a u d i t i n g computerized accounting r e c o r d s , two techniques have been developed which depend mainly upon the o r i g i n a l i t y of r ecords to be a u d i t e d . In " a u d i t i n g w i t h the computer", the a u d i t o r or 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 of the c o r p o r a t i o n than i s the case i n " a u d i t i n g around the computer". The two techniques do not r e p l a c e each other however, and many times they have to be performed c o n c u r r e n t l y . CHAPTER I I GENERALIZED COMPUTERIZED AUDIT PACKAGES There are two means to achieve " a u d i t i n g w i t h the 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. In f a c t , the former can be considered a subset or component of the l a t t e r . Every time we wish to r e t r i e v e and examine data from a storage medium, we co u l d w r i t e a program i n one of the programming languages such as FORTRAN, COBOL or P L / l to accomplish t h i s . The l a r g e r the program, the h i g h e r w i l l be the p r o b a b i l i t y i n making mistakes. In order to be more economical and to minimize e r r o r s , the more f r e q u e n t l y encountered programs are p r e - w r i t t e n , thus composing the elements of an a u d i t package. In t h i s way, only a small programming e f f o r t i s r e q u i r e d f o r c a r r y i n g out the work of a l a r g e 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 of a set of 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 accounting system, w i t h extended 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 can be used v / i t h complete independence from the c l i e n t ' s programs. Any d a t a - r e t r i e v a l system used 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 study as w e l l . In f a c t , these computer program packages are t o o l s f o r a s s i s t i n g the 16 17 auditor i n h i s work. They are so designed that many of the routine audit tasks can he performed quickly. Present Packages i A review of the audit packages hy Mr. Oakley showed that there were eight packages hy 1969 and another f i v e were under development hy that time. In early 1972, 2 Dr. W i l l l i s t e d f i f t e e n developed and available packages. •3 The development i s rapid 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 r e t r i e v a l systems which are l i s t e d i n table VI. The l i s t i s by no means a complete one since some known packages were not included i n the analysis. Components The primary objective of developing and implementing these packages i s s i m i l a r . Many of the auditors 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 ele c t r o n i c data processing, programming, computer technology and f a c i l i t i e s . A. Oakley, "Analysis of Packages," Report of  Proceedings - Computer Audit Packages: Information  R e t r i e v a l & Specialized Audit Features (Portland Place, London: The B r i t i s h Computer Society), paper 6, p. 69. 2 H. J. W i l l , "Computer-Based Auditing - Part I I : Comparison of Generalized Computer Auditing Packages," Canadian Chartered Accountant, March 1972, p. 33. Donald L. Adams and John P. Mullarkey, "A Survey of Audit Software," Journal of Accountancy, September 1972, pp. 39-65. 18 Table VI LIST OE AVAILABLE AUDIT PACKAGES Name of Packages Developing Firms ASK 360 AUDASSIST AUDEX AUDIT AUDITALL AUDITAPE AUDITEIND AUDITPAK AUDITR0NIC-16 AUDIT-THRU AY AUDIT/MANAGEMENT SYSTEM BUG CARS CFA DATA-MAN EDP AUDITOR EXTRACTO FILETAB Whinney Murray & Co. and Thompson McLintock & Co. (UK) Alexander Grant & Co. (US) A r t h u r Andersen & Co. (US) Chase Brass & Copper Co. I n f o r m a t i c s & L e i d e s d o r f Haskins & S e l l s (US, Canada) D a t a s k i l (US) Lybrand, Ross Bros. & Montgomery (US) Ern s t & Er n s t (US) Computer Resources Co r p o r a t i o n (US) A r t h u r Young & Co. (US) Computer Task Group Inc. (US) Computer Au d i t Systems, Inc. (US) P r i c e Waterhouse & Co. (US) C u l l i a n e C o r p o r a t i o n (US) A q u i l a Bst L t d . N a t i o n a l Computer Centre L t d . (US) FIND I n t e r n a t i o n a l Computers (UK) Table VI (continued) 19 Name of Packages Developing Pirms GENERAL RETRIEVAL SYSTEM GRIP GRS INTERROGATOR MARK IV MIRALL/AUDIT NITA PROBE SCORE STRATA SYSTEM 2170 TABGEN TRAP UCANDU Program Products Incorporated (US) Gulf O i l Canada L t d . I n f o r m a t i c s N a t i o n a l Computer Center (UK) Computer Resources C o r p o r a t i o n Programming Methods Inc. (PMl) (us 7 Touche Ross & Co. (US) Peat Marwick, M i t c h e l l & Co. (US) Sun L i f e Assurance Co. of Canada Touche Ross & Co. (Canada) Gulf O i l Canada L t d . 20 Moore and Yocom ^ wrote: ... one of the most f r u s t r a t i n g experiences f o r the non-EDP t e c h n i c i a n i s to attempt to 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. Before, a u d i t o r s had to depend upon EDP e x p e r t s . Mis-understandings 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 of time. Due to the f a c t t h a t a l l of these packages f u n c t i o n s i m i l a r l y , and t h a t they a l l aim at e f f i c i e n t 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 s u f f i c e . They c o n s i s t of a program or set of programs designed to e x t r a c t accounting data from the c l i e n t ' s computerized accounting f i l e s . These programs are mostly s t o r e d on tapes and some packages are a v a i l a b l e i n more than one v e r s i o n to f i t the c l i e n t s ' machines and systems. During the r e t r i e v a l , m a n i p u l a t i o n of f i l e s and 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 , sampling, s o r t i n g , s t r a t i f y i n g and t e s t i n g may 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 or r e p o r t s i n v a r i o u s formats 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 ( e i t h e r p o s i t i v e or n e g a t i v e , or both) may a l s o be produced. Pigure 2 i s a s i m p l i f i e d diagram showing the general procedure of a computerized a u d i t package system. I t should be noted t h a t the d e t a i l e d procedures 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 Information Tool 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 Seventies (Arthur 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 to the designs of the systems. Information from s p e c i f i c a t i o n sheets i s converted i n t o punched cards. These s o - c a l l e d s p e c i f i c a t i o n sheets are p r e - p r i n t e d forms and the a u d i t o r s f i l l them out by u s i n g pre-determined codes. The s p e c i f i c a t i o n sheets represent the source program f o r r e t r i e v a l and a n a l y s i s . The exact method of completing them depends upon t h e i r format. In g e n e r a l , f o u r kinds of design are employed: (1 ) 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 of 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 or together w i t h other punched cards, they perform what i s "commanded". The most common r o u t i n e s t h a t are i n c o r p o r a t e d i n the present packages are 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 d e s c r i p t i o n of the v a r i o u s packages i n t h i s study. This i n f o r m a t i o n 23 Table V I I THE MOST COMMON ROUTINES OP AUDIT PACKAGES No. of 5 F.eatures Responses Percentages ACCESS ( P i l e ) C r e a t i o n / G e n e r a t i o n / Reformatting (Extract-ion) 32 84.2% ( P i l e ) S e l e c t i o n (no re f o r m a t t i n g ) 23 60.5% (Input) P i l e E d i t i n g 29 76.3% TESTING Aging 31 81.6% Comparison of F i e l d s 36 94.7% Comparison of F i l e s 32 - 84.2% Table-lookup 27 71.0% F i e l d C l a s s i f i c a t i o n 28 73.7% Include/Exclude 34 89.5% Match/Merge 34 89.5% Sequence Checking 30 79.0% REORGANIZATION I n s e r t (Add data i n t o a f i l e ) 26 68.4% Move ( T r a n s f e r data from one f i e l d to another) 29 76.3% Reformat 31 81.6% Sort 32 84.2% S t r a t i f i c a t i o n 34 89.5% Summarize 38 100.0% 5 The f i g u r e s under t h i s column heading are the numbers of responses to the corresponding items expressed as percentages of the t o t a l number of 38 answers by the responding f i r m s . Table V I I (continued) 24 No. of Features Responses Percentages 6 SELECTION & ANALYSIS The Search 27 71.1$ Block S e l e c t i o n 26 68.4% Systematic Sampling 33 86.8% A t t r i b u t e Sampling 27 71.1% CALCULATIONS Accumulation 37 97.4% B a s i c Mathematical' Operations 38 100.0% F o o t i n g & Record Counts 37 97.4% R a t i o Computation 23 60.5% S u b t o t a l 37 97.4% Percentages 28' 73.7% Averages 26 68.4% REPORTING L i s t i n g 34 89.5% P r i n t Names & Addresses 32 84.2% P r i n t T i t l e s & Headings 33 86.8% Punch Cards 27 71.1% P o s i t i v e C o n f i r m a t i o n L e t t e r 25 65.8% Negative C o n f i r m a t i o n L e t t e r 23 60.5% Tabulate Reports 25 65.8% The f i g u r e s under t h i s column heading are "the numbers of responses to the corresponding items expressed as percentages of the t o t a l number of 38 answers by the responding f i r m s . c o u l d be obtained from the pamphlets or b o o k l e t s of the v a r i o u s systems. Furthermore, there i s no attempt to compare these systems. Studies i n t h i s area had been done and p u b l i s h e d under the heading of "Computer-Based 7 A u d i t i n g " i n the Canadian Chartered Accountant and under Q the t i t l e of "A Survey of A u d i t Software" i n the J o u r n a l of Accountancy. SUMMARY This chapter presents the o u t l i n e of v/hat an a u d i t package i s , what i t i s composed of, and how i t works. The programs or subprograms are summarized i n t a b l e V I I which Q l i s t s only those common and important 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 , " Canadian  Chartered Accountant, February and March, 1972. Q Adams and M u l l a r k e y , op. c i t .  9 See pages 97-9 of appendix B f o r a more complete l i s t . CHAPTER I I I COST-BENEFIT ANALYSIS INTRODUCTION The primary f a c t o r to he considered i n the design, development' and implementation of a system i s i t s c o s t -b e n e f i t r e l a t i o n s h i p . I n s u f f i c i e n t cost data made t h i s a n a l y s i s of a u d i t packages i n f e a s i b l e , but a d i s c u s s i o n of the c o s t s t h a t have to be considered and the b e n e f i t s t h a t would be gained from the u t i l i z a t i o n are presented i n t h i s chapter. COSTS Two c a t e g o r i e s of c o s t s have to be taken i n t o 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 c o s t s D i r e c t 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 cost of development and implementation, and (3) the cost of improvements and amendments. Cost of design. The s i z e and q u a l i t y of the team i n d e s i g n i n g the system and the time i n c u r r e d form the elements of 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 to those d i r e c t l y r e l a t i n g to the a u d i t package systems. 26 27 Should the wgge of the i - t h employee who worked T^ u n i t time i n t h i s t a s k of design he d o l l a r s and should there he n employees, then the t o t a l cost of design would he the sum of "F"' and n products of W^T^ where "F" represented miscellaneous expenses i n c u r r e d . These expenses 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 other s p e c i a l allowances i n connection w i t h t h i s task. Should there be a l o s s i n revenue due to the t r a n s f e r of an employee from one department to t h i s task, then the wage of the employee should i n c l u d e t h i s o p p o r t u n i t y cost of l o s s i n revenue. Cost of development and implementation. In a d d i t i o n to the two main components considered i n the cost of design, the computer charges have to be i n c l u d e d . These would i n c l u d e the 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 of the programs ( r o u t i n e s ) and the r e n t a l and/or purchase c o s t s of the hardware and software. The t o t a l cost would be the sum of the cost of design and the computer charges. Post of improvements and amendments. Future p e r i o d s have to 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 not i m p o s s i b l e , to measure. An e s t i m a t i o n of f u t u r e cahs o u t l a y has to be determined. In f a c t , t h i s cost can be considered as f u t u r e "development and implementation" c o s t . I f the cost of 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 cost of improvements and amendments w i l l be: (1 + r ) ^ C . ,1 d I n d i r e c t Costs T r a i n i n g c o s t . The main i n d i r e c t cost i s the t r a i n i n g c o s t . In 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 and a. s a l a r y i s p a i d d u r i n g the t r a i n i n g p e r i o d . In order to f a c i l i t a t e f u t u r e " a u d i t i n g w i t h the computer", i n i t i a l t r a i n i n g i s important. One way to 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 . D i s -r e g a r d i n g the e d u c a t i o n a l background, the most common t r a i n i n g .period i s f o r t y working hours. The t r a i n i n g p e r i o d may, however, be as short as one day and as l o n g as few months. Of course, i t a l l depends upon the person to be t r a i n e d and the package to be used. A l s o , the l e v e l s of f a m i l i a r i t y of the t r a i n e e s w i t h packages d i f f e r . In ge n e r a l , l e s s than one week i n t r a i n i n g i s a l l t h a t i s necessary. r e l a t e d d i r e c t l y w i t h the packages are 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 those caused by e r r o r s made du 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 such 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 sheets, punch cards, papers and p e n c i l s . M i s c e l l a n e o u s c o s t s . Any c o s t s t h a t are not 29 Summary The c o s t s d e s c r i b e d above may not be able to be d i s t i n g u i s h e d s h a r p l y among one another. They may belong to more than one category. At any r a t e , the estimated t o t a l c o s t s would be t h e i r summation. BENEFITS There are v a r i o u s b e n e f i t s t h a t would be gained from the use of AP's. These i n c l u d e : ( 1 ) f u t u r e cost r e d u c t i o n , (2) higher 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 r e l a t i o n s . Future Post Reduction A u d i t packages are p r i m a r i l y designed f o r the r e t r i e v a l of data from the f i l e s and f o r performing the d e s i r e d data m a n i p u l a t i o n s , w i t h the e x p e c t a t i o n of reduced c o s t s when compared v/ith other (non-computerized) approaches. The machine, .performs a task i n a matter of minutes, whereas the a u d i t team would have spent hours, i f not days, on the same job. For 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 accounts i n three 2 minutes - no c l e r k can match t h a t " . The prime f a c t o r B. G. Jenkins and P..JYL Benson, "Computer Au d i t Packages, An I n t r o d u c t i o n , " 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  A u d i t 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 1, p. 2. 3 0 causing the cost r e d u c t i o n i s the time i n the performance of a u d i t s t h a t may he reduced. Time r e d u c t i o n . U s u a l l y time i s saved i n a u d i t w i t h the a i d of an AP. Prom the sample p o p u l a t i o n , only 3% s t a t e d t h a t there was no time r e d u c t i o n i n the performance of c l e r i c a l work, whi l e 2 5 % d i d not answer. Table V I I I g i v e s a summary of the responses to the percentages of time saved. The second column of the t a b l e g i v e s the number of f i r m s w i t h AP's t h a t responded to 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 are the t o t a l number of responding f i r m s w h i l e the l a s t column summarizes i n the form of percentages expressed i n r e l a t i o n to the t o t a l number of 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 reduced v a r i e s because of the types of 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 place d i f f e r e n t emphasis on the v a r i o u s t a s k s . Some f i r m s r e p o r t e d t h a t due to the time saved, a more comprehensive examination i s p o s s i b l e . Performing the same job, c l e r i c a l time i s saved,.or w i t h the same amount of time, more work can he performed. Higher E f f i c i e n c y The use of AP's saves time and energy i n t r a i n i n g and i n p u t . The AP's guarantee t h a t every 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 to c o r r e c t programming). They enable the a u d i t o r s to spend T a b l e V I I I SUMMARY OF THE RESPONSES TO THE PERCENTAGE OF TIME SAVED BY AUDITING WITH AN AP Amount F ? rms FIrms With AP's Without AP's T o t a l P e r c e n t a g e s No time saved 0 3 3 3.(1% Less than 10% o f time saved 5 9 11+ 15.6% 10-25% o f time saved ,//9 9 18 20.0% 25-50% o f time saved 10 9 19 21.2% More t h a n 50% o f time saved 6 7 13 lh.h% No i d e a lk 9 23 25.5% TOTAL 46 90 100.0% 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 column (under 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 the 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 . Besides, communication i s more e f f e c t i v e . The a u d i t o r i s no longer spending an i n o r d i n a t e amount of time making h i s needs known to data p r o c e s s i n g 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 . The need to communicate w i t h data p r o c e s s i n g personnel apart from o b t a i n i n g b a s i c i n f o r m a t i o n r e l a t i n g to the o r g a n i z a t i o n of t h e i r computer records i s l a r g e l y by-passed" ^. The p o s s i b i l i t y of misunderstanding i s reduced s u b s t a n t i a l l y . In g e n e r a l , a u d i t packages y i e l d h igher a u d i t e f f i c i e n c y than any other techniques. Obviously, i t r e q u i r e s l e s s time than p r e p a r i n g s p e c i f i c programs f o r each a u d i t s i t u a t i o n . On the average, i t appears to be more e f f i c i e n t than a u d i t i n g around the computer. 77% of those p a r t i c i p a t i n g f i r m s which use AP's s t a t e d t h a t a u d i t i n g w i t h an AP was more e f f i c i e n t . The r e s u l t of the responses can be seen from t a b l e IX. Table IX i n d i c a t e s that some f i r m s were e i t h e r u n w i l l i n g to answer t h i s q u e stion or not sure of the comparison between the e f f i c i e n c y of an AP-audit and an around-the-computer a u d i t . However, they comprise a v e r y s m a l l p o r t i o n of the whole subset. On the whole, the use of AP's i s considered more e f f i c i e n t than a u d i t i n g around the computer or a p p l y i n g a s p e c i f i c programming language. ^ Ric h a r d Webb, "AUDASSIST," J o u r n a l of Accountancy, 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 I n t e r n a t i o n a l N a t i o n a l R e g i o n a l Firms Firms F i r m s L o c a l Firms T o t a l A u d i t around t h e computer 0 C 0.0%) 0 ( 0.0*) 0 ('. 0. 0 ( 0.05) ( o.o%) A u d i t w i t h t h e computer 15 0 0 . n > ( 4.6%) (11.3%) 31 ( 70.k%) Both a r e more o r l e s s t h e same ( 2.3%) ( 2.3%) ( 0.0%) 0 ( 0.0%) ( k:s%) No idea (13.6%) ( 2.3%) ( 9. 1%) 0 ( 0.0%) 11 ( 25.0%) TOTAL 22 (50.0%) 11 (25.0%) (13.7%) (11.3%) 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 as pe r c e n t a g e s t o the t o t a l number o f kk answers by t h e r e s p o n d i n g f i r m s . 34 R e l i a b i l i t y "The system should be designed to check the r e l i a b i l i t y and accuracy of f i n a n c i a l data, minimize e r r o r 6 ..." . In 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, thus m i n i m i z i n g humen-errors. At the same time, f r a u d can be detected more e a s i l y and q u i c k l y . Hence, the r e s u l t of the a u d i t can be more r e l i a b l e than the t r a d i t i o n a l manual a u d i t . Ease In Input Ease i n commanding the computer. In d e s i g n i n g a system, the ease of i n p u t t i n g data and commands has to be considered. This i s one of the reasons f o r the development of AP's. The so c a l l e d " a u d i t language" used i n AP's i s much s i m p l e r than any other programming language. They are very n e a r - E n g l i s h or even f o r m a t - f r e e . Some only r e q u i r e the checking of squares or boxes. This s i m p l i c i t y i n i n p u t would minimize the amount of e r r o r s . Any mistakes i n programming i n c u r c o s t s and, thus, the i n p u t design of the AP's can be a cost r e d u c t i o n f a c t o r as w e l l . With the a u d i t package, the a u d i t o r needs only f i l l i n a set of p r e - p r i n t e d s p e c i f i c a t i o n sheets. The most common and e a s i e s t to complete i s the James B. Bower, Robert E. S c h l o s s e r , and Charles T. Z l a t k o v i c h , E i n a n c i a l I nformation Systems: Theory and P r a c t i c e (Boston: 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 t merely r e q u i r e s f i l l i n g i n boxes or squares on a pre-designed n a r r a t i v e form. Another one i s the s t r u c t u r e d set of forms. More d e t a i l s may have to be given, but comparatively speaking, i t i s much s i m p l i e r than other computer languages. Coding i s more n a r r a t i v e i n form than the previous two. I t i s a language s i m i l a r to ab b r e v i a t e d E n g l i s h . Least common, but very e f f i c i e n t i s the i n t e r a c t i v e a u d i t command language. I t provides a d i r e c t communication w i t h the 7 computer E f f e c t i v e Reporting Timely and accurate r e p o r t i n g are p e r t i n e n t f a c t o r s i n the design of a system. They "should he designed to 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, out-standing exceptions can e a s i l y and q u i c k l y be detected and p r i n t e d w i t h i n minutes. The speed of 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 another source f o r time r e d u c t i o n q which 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 , support and competence of those who ' H. J . W i l l , "An I n t e r a c t i v e ACL (Audit Command Language) Prototype," Proceedings of the Annual Conference  of the Canadian Information P r o c e s s i n g S o c i e t y , Session •73, pp. 63-88. Q Bower, op. c i t . , p. 222. q J See "Future Cost Reduction" on pages 29-51. 36 work with, the system should be taken i n t o c o n s i d e r a t i o n . I t depends upon the need f o r t r a i n i n g and the ease of programming. The lon g e r the t r a i n i n g , the b e t t e r w i l l the employees be equipped. However, t h i s means more c o s t s . F o r t u n a t e l y , on the average, the t r a i n i n g p e r i o d i s l e s s than a week Another human f a c t o r to be considered i s m o t i v a t i o n . Among the 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 ) the urge to succeed and to achieve, and (2) the urge to avoid f a i l u r e and disappointment are the 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 records i s concerned. These two are, none-t h e l e s s , e a s i l y a t t a i n e d hy the use of AP's because of the ease i n u s i n g the systems as dis c u s s e d i n the previous 11 s e c t i o n L e a r n i n g a f f e c t s the morale of the us e r s . Should the l e a r n i n g process be too l o n g , users may l o s e i n t e r e s t before they a c t u a l l y use the system. T h e i r f r u s t r a t i o n may i n t u r n a f f e c t t h e i r performance of other a u d i t t a s k s . At the same time, a lo n g t r a i n i n g program may i n c u r a hugh 1 2 cost . The short t r a i n i n g p e r i o d and the ease i n l e a r n i n g to command or program sol v e s the problem. F i n a l l y , the a n a l y s i s covers the i d e a l q u a l i f i c a t i o n s f o r mastering an AP. The r e s u l t should be of i n t e r e s t to See " T r a i n i n g c o s t " on page 28. See "Ease In Input" on pages 34-5. See " T r a i n i n g c o s t " on page 28. 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 of f u t u r e r e c r u i t m e n t and t r a i n i n g requirements. The r e s u l t of the responses to the question of the i d e a l q u a l i f i c a t i o n f o r mastering an AP i s summarized below: (A) B a s i c programming knowledge 20.6% (B) Ba s i c data ( f i l e ) o r g a n i z a t i o n knowledge 35.0% (C) B a s i c computer knowledge 25.0% (D) Other 13.8% (E) No i d e a 5.6% TOTAL 100.0% In answers to 1D', others i n c l u d e good l o g i c a l and a n a l y t i c a l mind, b a s i c knowledge of systems, accounting and a u d i t i n g knowledge. These are r e q u i r e d by an a u d i t o r , r e g a r d l e s s of h i s d e c i s i o n to use an AP i n h i s a u d i t ; how-ever, they i n d i c a t e the u s e r - o r i e n t a t i o n among the 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 on the c o s t - b e n e f i t a n a l y s i s of a u d i t packages. In c o n s i d e r i n g the c o s t s , both d i r e c t and i n d i r e c t c o s t s should "be i n c l u d e d . These are expenses i n c u r r e d i n the processes of design, development and implementation, 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 other hand, there are b e n e f i t s gained from the u t i l i z a t i o n . The a n a l y s i s of the c o l l e c t e d data g i v e s s i x advantages i n t h i s chapter, being f u t u r e cost r e d u c t i o n , h i g h e r e f f i c i e n c y , r e l i a b i l i t y , ease i n i n p u t , e f f e c t i v e r e p o r t i n g and improved human r e l a t i o n s . The f o l l o w i n g chapter w i l l c o n s i d e r and d i s c u s s other m e r i t s . CHAPTER. IV ANALYSIS - CONTINUED INTRODUCTION Co 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 the development of packages have heen discussed i n the previous chapter. This chapter w i l l concentrate on other f a c t o r s such as the change i n the emphasis of v a r i o u s a u d i t t a s k s , the a i d i n a c h i e v i n g the a u d i t standards and the e f f e c t upon employment when AP's are used. AUDIT STANDARDS In the p u r s u i t of g r e a t e r c l a r i t y and conformity, a u d i t o r s have sought to draw up a d e f i n i t e code of standards. At the meeting of the American I n s t i t u t e of Accountants (AIA), now the American I n s t i t u t e of C e r t i f i e d P u b l i c Accountants (AICPA), i n 1948, as a r e s u l t of p r e l i m i n a r y work hy an i n s t i t u t e committee, ten statements of standards grouped under three main c a t e g o r i e s were adopted under the headings of "general standards", "standards of f i e l d work" and "standards of r e p o r t i n g " . The "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 the f i n a n c i a l statements are presented 'in accordance w i t h general accepted p r i n c i p l e s of accounting. 39 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 observed i n the cu r r e n t p e r i o d i n r e l a t i o n to the preceding p e r i o d . (3) Informative d i s c l o s u r e s i n the f i n a n c i a l statements are to be regarded as reasonably adequate u n l e s s otherwise 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 exp r e s s i o n of 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 statements, taken as a whole, or an a s s e r t i o n to the e f f e c t t h a t an o p i n i o n cannot be expressed. When an o v e r a l l o p i n i o n cannot be expressed, the reasons t h e r e f o r e should be s t a t e d . In a l l cases 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 r e p o r t should c o n t a i n a c l e a r c u t i n d i c a t i o n of the c h a r a c t e r of the a u d i t o r ' s examination, i f any, and the degree of r e s p o n s i b i l i t y he i s t a k i n g . R e p o r t i n g i s a summarization of the extent of v e r i f i c a t i o n , the f i n d i n g s and the c o n c l u s i o n . Reporting has to be completed by the a u d i t o r or an e q u i v a l e n t person and i s not b u i l t i n t o AP's. The f o u r statements under "standards of 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 can 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 of the other standards w i l l a l s o be a s s i s t e d by the use of AP's. General Standards ( 1 ) The examination i s to he performed hy a person or persons having 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 used or not, present day a u d i t o r s have to possess some knowledge of EDP. This has been r e f l e c t e d i n the study towards any accounting d e s i g n a t i o n . Knowing how to master an AP i n d i c a t e s t h a t the a u d i t o r has been t r a i n e d i n t h i s area 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) In a l l matters r e l a t i n g to the assignment an independence i n mental a t t i t u d e i s to be maintained by the a u d i t o r or a u d i t o r s . - A l a c k of knowledge of EDP w i l l r e q u i r e an a u d i t o r to depend upon other s p e c i a l i s t s . He i s thus l e s s independent. The use of AP's enables the a u d i t o r to r e t r i e v e and analyse d i r e c t l y the data and i s thus more independent than " 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 care i s to he expected i n the performance of the examination and the p r e p a r a t i o n of the r e p o r t . -EDP records are more complicated than other accounting records and i t would be im p o s s i b l e to c a r r y out the a t t e s t f u n c t i o n without due p r o f e s s i o n a l care. Standards ' of F i e l d Work ( 1 ) The work i s to be adequately planned and a s s i s t a n t s , i f any, are to be p r o p e r l y supervised. - I t i s not 42 p o s s i b l e to command an AP without planned assignment and the computer takes 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 to be a proper study and e v a l u a t i o n of 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 thereon and f o r the d e t e r m i n a t i o n of the r e s u l t a n t extent of the t e s t s to which a u d i t i n g procedures are to be r e s t r i c t e d . - The i n c r e a s e i n accounting records caused the s h i f t from d e t a i l examination to the 1 emphasis of i n t e r n a l c o n t r o l . V/ith computer-based accounting systems, i n t e r n a l c o n t r o l p l a y s the major r o l e p a r t i c u l a r l y because they are not readable without the a i d of a computer. Hence study and e v a l u a t i o n of 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 of AP's i n a u d i t i n g . (3) S u f f i c i e n t competent e v i d e n t i a l matter i s to 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 to a f f o r d a reasonable 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 statements under examination. - The computer has brought w i t h i t new methods of accounting systems documentation, such as f l o w c h a r t s and diagrams. Using AP's f a c i l i t a t e s the o b t a i n i n g of these new documents i n a d d i t i o n to 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 the f i n a n c i a l statements. See "Audit 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 f i r m s i n connection w i t h a u d i t standards and computer-auditing i s t a b u l a t e d and appears on page 44. Roughly speaking, more than 50% agree t h a t the packages meet the a u d i t standards, p a r t i c u l a r l y the t h i r d "standard of f i e l d work", because s u f f i c i e n t competent a u d i t programmes are most f r e q u e n t l y used i n meeting the standards 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 e v i d e n t i a l matter. Another question a r i s e s from the use of AP's, namely whether new standards are r e q u i r e d . Table XI presents the p r o p o r t i o n of respondents r e p l y i n g to t h i s q u e s t i o n . More than 50% s t a t e t h a t new standards are not r e q u i r e d . Only 22% do not agree. In f a c t most of the l a t t e r group do not give any s t r o n g reasons. Pollowings are some of the few e x p l a n a t i o n s : Yes - a u d i t o r must become more i n v o l v e d and knowledgable w i t h computers ... Yes - to a u d i t e f f e c t i v e l y one must understand what one i s doing ... Yes - ... non-data p r o c e s s i n g personnel do not understand how the a u d i t package works ... How much should an a u d i t o r know about the computer i s q u e s t i o n a b l e . I t i s t r u e t h a t some a u d i t o r s do not understand how the system works. However, an a u d i t o r does not have to bother about t h i s s i n c e h i s main concern i s e x p r e s s i n g an o p i n i o n upon the examined f i n a n c i a l statements. He should he a l e r t to what he i s doing at a l l times. AP 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 Table X RESPONSES TO MEET VARIOUS AUDIT," STANDARD S F i rms F i rms Standards With APIs.. Without AP's Total Audit by trained and pro f i c ien t auditors Independence In the aud i to r 's mental a t t i tude and approach Due care in the performance of the aud i tor 's work Worfkbeing adequately-planned and supervised Proper study and evaluation of internal control S u f f i c i e n t competent evident ia l matter obtained No.answer 26 (60%) 2 18 (39%) kk (1+9%) '28 (63%) 25 (57%) 10. (50%) 23 (52%) 35 (79%) 5 (11%) 31 (67%) 59 (65%) 19 (1+0%) kk (£+9%) 16 (35%) 38 (l+-2%) .28 (60%) 51 (57%) 35 (76%) 70 (78%) .2 ( •+%) 7 ( 8%) The f igures in parenthesis under th is column heading are expressed as percentages to the total number of kk responding firms with A P ' s . ' The f igures in parenthesis under th is column heading are expressed as percentages to the total number of kS responding firms without AP 's . ii The f igures in parenthesis under thTs column heading are expressed as percentages to the total number of a l l 90 p a r t i c i p a t i n g f i rms . 45 c h a r a c t e r i s t i c s of the end r e s u l t , not the t o o l . Hence, new standards are not necessary. I t i s not s u r p r i s i n g to r e c e i v e more than 50% answers as "not r e q u i r e d " . The use of AP's i s so f a r only a change i n the a u d i t i n g technique, a new approach and p r a c t i c e to f a c i l i t a t e a u d i t i n g i n the environment of new accounting techniques, and not a change i n standards! Using AP's has changed the means hut the end o b j e c t i v e of v e r i f y i n g the accounts and expressing o p i n i o n on the f a i r n e s s of the f i n a n c i a l statements i s not a l t e r e d . However, there are about 20% of the r e p l i e s which i n d i c a t e t h a t new standards are r e q u i r e d . 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 present standards i s Table XI SUMMARY OF FIRMS RESPONDING TO THE REQUIREMENT OF NEW STANDARDS Firms Firms With AP's Without AP's T o t a l "YES" Answers 10 (11.1%) 11 (12.2%) 21 ( 23.3%) 5 "NO" Answers 28 (31.1%) 24 (26.7%) 52 ( 57.8%) No Answers 6 ( 6.7%) 11 (12.2%) 17 ( 18.9%) TOTAL 44 (48.9%) 46 (51.1%) 90 (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 corresponding numbers expressed as percentages to 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 . 46 deemed necessary. They want t i g h t e r standards than p r e s e n t l y e x i s t . In f a c t , they argue t h a t new standards should 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 order to guarantee o b j e c t i v i t y , accuracy and r e l i a b i l i t y , as the f o l l o w i n g r e p l i e s show: ... This i s a new technique and r e q u i r e s c o n t r o l . C o n s i d e r a t i o n s to guarantee i t s o b j e c t i v i t y , accuracy and r e l i a b i l i t y ... ... Standards should be expanded to 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 these can be met w i t h one or more of the present standards. A u d i t o r s , having 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 (general standard number one) should be able to determine the amount of t e s t s and the d e t a i l of v e r i f i c a t i o n . FEES (COSTS CHARGED) Is there any e f f e c t upon the fees charged to the c l i e n t s ? (For i n t e r n a l a u d i t i n g , t h i s would be the e f f e c t of the a l l o c a t i o n of c o s t s . ) The responses should r e f l e c t somewhat the c o s t - b e n e f i t to the f i r m s . U n f o r t u n a t e l y , the responses were so few that a c o n c l u s i o n could h a r d l y be drawn from the data. Among the r e p l i e s , some considered t h a t the fees (or charges) would 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 the cost was diminished. Some s t a t e d t h a t the i n i t i a l a p p l i c a t i o n of the system was even more expensive 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 the c o s t . On the other hand, there were disagreements. The main reasons f o r the u n a f f e c t e d fees 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 cost 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 only a t o o l which should not a f f e c t the f e e . AUDIT TASKS An a u d i t can be staged a c c o r d i n g to the kinds of ta s k s to be performed. M a i n l y , these tasks are: ( 1 ) p r e - a u d i t n e g o t i a t i o n s , (2) review 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 of documents and data, ( 4 ) a n a l y s i s of documents and data, (5) r e p o r t i n g , and (6) m i s c e l l a n e o u s . Only nineteen 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 are summarized on pages 48-50. Table X I I and X I I I give the 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 the package a u d i t r e s p e c t i v e l y e Table 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 the two techniques. Prom t a b l e XIV, a t t e n t i o n i s drawn to the p o i n t t h a t time saved from r e t r i e v a l of documents and data had been switched to the Table X!I STATISTICS OF RESPONSES TO THE ALLOCATIONS OF VARIOUS AUDIT TASKS WHEN USING THE MANUAL AUDIT (IN PERCENTAGES) Audit Tasks Mean Med ian Mode Standard D e v i a t i o n MaxImum M i n imum Range Review of i n t e r n a l c o n t r o l s 26.5 2 0.6 20 15.0 60 5 55 R e t r i e v a l of documents and data 29.2 26.8 13.9 50 7 A n a l y s i s of documents and data 35.5 38.2 kO 10.5 50 10 hQ Reporting 6.8 2.3 0 12.5 kO 0 40 Pre-audit n e g o t i a t i o n s 0.0 0.0 0 0.0 >0 0 0 Mi seellaneous 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 Tasks Mean Med tan Mode Standard D e v i a t i o n Max imum Min imum Range Review of i n t e r n a l c o n t r o l s 31.8 37.2 kO 20.2 75 2 73 R e t r i e v a l of documents and data 21.7 15.3 5 20.2 78 5 73 A n a l y s i s of documents and data 35.0 34.8 20 17.3 85 11 7k Reporting 7.1 2.3 0 12.6 kO 0 kO P r e - a u d i t n e g o t i a t i o n s 1.0 0.6 0 20 0 20 M ? seellaneous 3.3 0.5 0 12. k 5k 0 5k 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 ian Mode Standa rd Deviat ion Maximum Min imum Range Review of i n t e r n a l c o n t r o l s + 5.3 + 10.0 0 2«*.7 + 45 -53 98 R e t r i e v a l of documents and data -7.5 -Ik.2 -20 25.8 + 56 -45 101 A n a l y s i s of documents and data -0.it -0.5 0 18.2 • * 5 -30 75 Report ing + 0.3 + 0.1 0 1.2 + 5 0 5 Pre- a u d i t n e g o t i a t i o n s + 1.0 + 0.6 o k.6 + 20 0 20 M i s eel 1aneous + 1 A + 0.2 0 5.3 + 23 0 23 P o s i t i v e f i g u r e s represent increases. 1 in percentage of time a l l o c a t i o n when changing from manual a u d i t to package a u d i t . 51 review of i n t e r n a l c o n t r o l . This i s because of the cu r r e n t emphasis of 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 are: (A) I can do more a u d i t work i n the same amount of time. (B) I have gained 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 can use computers f o r much of the c l e r i c a l a u d i t 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 w i t h ease. (E) I can concentrate 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 EDP. (H) I do not have to be a p r o f e s s i o n a l programmer. The mean, mode and median of the answers to the e f f e c t s on a u d i t o r s are summarized by the t a b l e on page 52. The f i g u r e s i n the l a s t column, the numbers of f i r m s r e p l y i n g , do not add up to n i n e t y due to the f a c t t h a t not a l l statements apply to every f i r m . EFFECT ON EMPLOYMENT Business e n t i t i e s are p a r t of the economic system. Accounting 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 concerned about the s o c i a l impact of u t i l i z i n g a u d i t Table XV STATISTICS OF RESPONSES TO THE EFFECT OF 7 AUDIT PACKAGES ON AUDITORS Numver of E f f e c t s Mean Median Mode Responses I do not 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 of the c l e r i c a l a u d i t work 3.69 3.4 2 77 I can i n t e r f a c e with computer f i l e s 3.95 4.0 5 76 I can q u i c k l y become " b i l i n g u a l " in a u d i t i n g and EDP 6.29 6.9 7 73 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 3.78 3.7 2 78 I can concentrate on exceptions 3.1*0 3.2 2 78 I can do more au d i t work in the same amount of time 3.43 3.2 1 79 I have gained p r o f e s s i o n a l independence in the f i e l d of EDP 4.59 5.1 1 73 "1" represents the most appealing to the a u d i t o r s , "2" the second/ ... and so on t i l l "8" the l e a s t . 53 packages. In recent years, people, e s p e c i a l l y those i n trade unions, have p r o j e c t e d the image of automation and other data p r o c e s s i n g means as one of the main causes f o r unemployment. Some even suggested t h a t such automation-should he stopped i n order to prevent f u r t h e r unemployment 8 in c r e a s e Table XVI and XVII give a summary of the e f f e c t of AP's upon the number of a u d i t s t a f f . The m a j o r i t y of f i r m s , whether possessing an AP or not, considered that there would be no change i n employmnet. Some even considered an i n c r e a s e . SUMMARY Accordi n g to the study of the v a r i o u s packages and together w i t h the answers from the p a r t i c i p a t i n g f i r m s , " a u d i t i n g w i t h the 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 than " a u d i t i n g around the computer" i n the f o l l o w i n g ways: (1) I t performs a l o t of 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 sampling. (4) A more d e t a i l e d , more extensive search i s p o s s i b l e and even the 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 In Theory And P r a c t i c e , " Business Topics (Autumn 1960), p. 7. 54 (5) More c o n f i d e n t - 100% checking i s p o s s i b l e (though i t may hot he economical) w i t h fewer (human) e r r o r s . (6) I t a l l o w s the performance of v a r i o u s f u n c t i o n s s i m u l t a n e o u s l y . (7) I t a l l o w s a u d i t o r s to concentrate more on i n t e r n a l c o n t r o l . (8) Because of i t s a b i l i t y to review, summarize and l i s t e x ceptions i n a short time, a u d i t o r s can conduct a u d i t s on an exc e p t i o n b a s i s . (9) I t enables a u d i t o r s to gai n b e t t e r knowledge of f i l e s and o p e r a t i n g systems. (10) I t i s more unbiased. (11) I t permits the use of a u d i t techniques not normally f e a s i b l e i n a manual a u d i t i n g environment. Use of t h i s technique, along w i t h the speed of the computer, makes t h i s procedure 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 the computer" i n many s i t u a t i o n s . The advantages of AP's over s p e c i f i c programming f o r i n d i v i d u a l s i t u a t i o n i n c l u d e 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 can use s p e c i a l s e l e c t i o n s and analyses 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 the f i e l d of EDP. 55 Table XVI EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF ON AN. -AUDIT TEAM Change Firms Firms In S t a f f With AP's Without AP's T o t a l +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% TOTAL 26 100.0% 33 100.0% 59 100.0% 56 Table XVII EFFECT OF AUDIT PACKAGES UPON THE NUMBER OF AUDIT STAFF OF THE WHOLE FIRM Change Firms Firms In S t a f f With AP's Without AP's T o t a l +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% TOTAL 26 100.0% 33 100.0% 59 100.0% CHAPTER V FEASIBILITY, DESIRABILITY AND JUSTIFIABILITY OF AN AUDIT COMMAND LANGUAGE (ACL) The study and a n a l y s i s show a number of advantages of a u d i t packages over the other techniques. 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 indexes to show whether an AP would he d e s i r a b l e i s necessary, 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 ' i s worthwhile to a u d i t computerized accounting systems w i t h a u d i t packages. This chapter w i l l summarize the responses which i n d i c a t e whether, from t h e i r p r a c t i c a l p o i n t of view, i t i s worthwhile to develop and possess a package, and whether i t 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 to develop 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 of the n i n e t y f i r m s p a r t i c i p a t i n g , there were seventeen accounting f i r m s (Chartered Accountant f i r m s , C e r t i f i e d P u b l i c Accountant 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 of these f i r m s and t h i r t y s i x of the other types of companies ( l e s s than 50% i n t o t a l ) responded to t h i s q u e s t i o n . The responses to t h i s are t a b u l a t e d i n t a b l e X V I I I . Table XIX c l a s s i f i e s these 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 Worth- Not Worth-Types Of Firms while while 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) Not Firms Worthwhile Worthwhile Total International 12 29.3% 4 9.8% 16 39.1% Firms (75%) (25%) National 2 4.9% 5 12.2% 7 17.1% Firms • (30%) (70%) Regional 6 14.6% 3 7.3% 9 21..9% Firms (67%) (33%) Local 5 12.2% 4 9.8% 9 22.0% Firms (55%) (45%) TOTAL 25 61.0% 16 39.1% 41 100.0% 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 c a t e g o r i e s : (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 (d) l o c a l f i r m s . I t i n d i c a t e s that 75% of the i n t e r n a t i o n a l f i r m s and more than t w o - t h i r d s of the r e g i o n a l f i r m s considered t h a t i t was worthwhile to develop t h e i r own packages. However, the m a j o r i t y of the n a t i o n a l f i r m s (70%) responded n e g a t i v e l y . On the whole, more than 60% of the f i r m s are i n f a v o r of the development. We could gain f u r t h e r i n s i g h t s "by summarizing t h e i r reasons f o r and a g a i n s t the development.'' The main p o i n t brought out a g a i n s t the development was t h e i r a b i l i t y and d e s i r e to purchase or rent a package. One f i r m commented that i t was too c o s t l y at present s i n c e most c l i e n t s were not of such a s i z e to warrant t h i s c o s t . By l o o k i n g i n t o the f u t u r e , we could 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 modify or adapt the present package used by t h e i r p u b l i c accounting f i r m s . One wrote tha t i t would not develop t h e i r own AP hut i t was worthwhile f o r a software f i r m to do so. This again i n d i c a t e s t h a t there i s and w i l l be such a need. On the other hand, those who are i n f a v o r of developing an AP considered t h a t i t was a n e c e s s i t y since i t c o u l d provide a l o t of b e n e f i t s . The f o l l o w i n g s are 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 pages 8-12. 60 ... You can i n c r e a s e your a u d i t coverage without 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 to do more work i n the same time and a l s o to concentrate on only the exceptions found ... ... " 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 necessary t o o l s ... ... (a) a b i l i t y to " a u d i t v i s i b l y " other 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 ks ... ... a c q u i r i n g and implementing 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 operations and, by a s s o c i a t i o n , to 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 permit them to a l l o t more time to 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 safeguards ... The above quotations summarize the b e n e f i t s of p AP's . However, the cost has to be weighed a g a i n s t the r e t u r n s and i t would be w o r t h l e s s to develop a system i f the cost i s unreasonable. One 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 worthwhile to develop ... as you then have the r i g h t s to modify 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 or purchase of a vendor package ... The o p i n i o n s expressed, except the cost c o n s i d e r a t i o n , i n d i c a t e t h a t an AP would be b e n e f i c i a l . P i n a n c i n g seems to be the only problem. Nonetheless, i t i s worthwhile and necessary to have AP's as an a u d i t t o o l . See previous chapters ( I I I and IV) f o r more b e n e f i t s . 61 AUDIT COMMAND LANGUAGE ? S t a n d a r d i z a t i o n f a c i l i t a t e s t r a i n i n g , l e a r n i n g , m o d i f i c a t i o n and understanding. Many t o o l s have a l r e a d y been st a n d a r d i z e d . Procedures are to a c e r t a i n degree s t a n d a r d i z e d . Audit standards are s t i p u l a t e d and coded. Now, we have to 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 to develop one common computerized a u d i t language (ACL). The response to t h i s question i s q u i t e s a t i s f a c t o r y . There were seventy-three f i r m s (80%) answering. Table XX summarizes the answers and i t seems t h a t , at f i r s t glance, ACL i s not d e s i r a b l e and j u s t i f i a b l e . However, a c o n c l u s i o n cannot be made at t h i s p o i n t . Out of the f o r t y f i r m s which considered ACL u n d e s i r a b l e and u n j u s t i f i a b l e , more than 50% possess an AP. To p r o t e c t t h e i r own package, from "being obsolete and to prevent a l o s s of t h e i r market, they are u n w i l l i n g to see the development of any package which would 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 than the one they are possessing. On the other hand, by a n a l y s i n g the other group, more than 50% of those having no AP were i n f a v o r of ACL. They suggested t h i s by reasons of 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 of most packages, ease of a p p l i c a t i o n and sta n d a r d i z e d r e p o r t . To Look at t h i s from a d i f f e r e n t angle ( t a b l e XXI) more small f i r m s ( r e g i o n a l and l o c a l ) were :. ..willing to 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 Table XX RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OE THE DEVELOPMENT OE AN AUDIT COMMAND LANGUAGE (BY POSSESSION OE AN AP) Types Of Eirms "YES" Answers "NO" Answers T o t a l Eirms w i t h AP's 13 23 36 Eirms Without PA's 20 17 37 TOTAL 33 40 73 Table XXI RESPONSES TO THE DESIRABILITY AND JUSTIFIABILITY OF THE DEVELOPMENT OE AN AUDIT COMMAND LANGUAGE (BY SIZE OF EIRMS) "YES" Answers •NO" Answers Types Of Eirms With AP's Without AP's T o t a l With AP's Without AP's T o t a l I n t e r n a t i o n a l 7 7 14 10 7 17 . N a t i o n a l 0 2 2 10 3 13 Regional 3 6 .9 2 3 5 L o c a l 3 5 8 1 4 5 TOTAL 13 20 33 23 17 40 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 are d i v i d e d . The t a b l e s XX and XXI present a combined response to both 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 . A f i r m c o u l d have responded both n e g a t i v e l y , or one p o s i t i v e l y and the other n e g a t i v e l y , or both p o s i t i v e l y . A seperate a n a l y s i s f o l l o w s t h e r e f o r e . DESIRABILITY Firms responding to t h i s q u e s tion d i d not comment on the reasons f o r u n d e s i r a b i l i t y . They merely s t a t e d why i t was not f e a s i b l e , not p r a c t i c a b l e and/or not j u s t i f i a b l e to develop one. On the other hand, t h i r t y - t w o out of the 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 reasons 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 previous s e c t i o n s . Although s l i g h t l y l e s s than 50% ^  considered i t both 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 reasons f o r t h e i r p o s i t i o n , i t might be concluded t h a t AOL i s d e s i r a b l e , because there 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 of 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 (or Desirable.. • ;dbes not have to be j u s t i f i a b l e f o r reasons such as cost 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 not h e c e s s a r i l y mean d e s i r a b l e due t o , f o r i n s t a n c e , c o m p e t i t i o n . ^ See t a b l e s XX and XXI on page 62. 64 p r a c t i c a b i l i t y ) i s to be considered now. The arguments and o p i n i o n s expressed, both f o r and a g a i n s t , are 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 would then have another body of 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 of v a r i o u s packages are mainly i n " s a l e s -manship". Thus i t seems t h a t a common language, i f f l e x i b l e enough, would serve a l l purposes. (3) I t would a s s i s t i n t r a i n i n g of s t a f f and spread under-standing among a l l accountants. (4) S i m p l i f y programming a p p l i c a b l e to divergent data p r o c e s s i n g companies' hardware and software. (5) Ease of implementation because terminology would be sta n d a r d i z e d . ( 6 ) S i m i l a r r a t i o n a l e t h a t prompted the use of COBOL and FORTRAN as machine independent languages. (7) For the same reasons that general computer programming was s t a n d a r d i z e d i n COBOL, FORTRAN, e t c . , t h a t i s , b e t t e r communication, p o r t a b i l i t y of t r a i n i n g and experience from one f i r m to another, and from one AP to another. (8) A u d i t standards can only 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 the same c a p a b i l i t i e s - a common a u d i t language i s one of these c a p a b i l i t i e s . (9) When the a u d i t o r changes jobs, he w i l l not have to for c e h i m s e l f to l e a r n new languages, because of t h i s 65 s t a n d a r d i z a t i o n . AGAINST: (1) V a r i e d a u d i t i n g purposes - more AP's a l l o w user to s e l e c t the most ap p r o p r i a t e one to meet t h e i r needs. (2) D i f f e r e n c e s i n a u d i t philosophy i s d i f f i c u l t to over-come . (3) Vast d i s p a r i t y i n the a v a i l a b l e f a c i l i t i e s and personnel. (4) There are too many machines and systems. (5) Cost i s too much - b e n e f i t s would not be worth the monumental e f f o r t r e q u i r e d . (6) Time to develop i s too lo n g . (7) Too many people are i n v o l v e d to come to an agreement. (8) More than one AP provides c o m p e t i t i o n t h a t can improve q u a l i t y of packages. Since the reasons f o r and ag a i n s t the j u s t i f i a b i l i t y of ACL are unweighted, i t i s hard to come to a c o n c l u s i o n on the i s s u e . Some of the problems encountered w i t h AP's cou l d j u s t i f y the l a r g e - s c a l e implementation of ACL. Por i n s t a n c e , a c c o r d i n g to one r e p l y , i t i s p o s s i b l e f o r more than one f i r m to design a package: ... From our experience i n developing amendments to (name of package), 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 of f i r m s to 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 are u n w i l l i n g to change to a new system f o r one or more of the f o l l o w i n g reasons: (1) too s a t i s f i e d w i t h t h e i r present package, (2) u n w i l l i n g or d i f f i c u l t to w r i t e o f f the cost of the 66 present package, (3) u n w i l l i n g to co-operate i n d e s i g n i n g and developing a new system, and ( 4 ) p r e s t i g e - t h e i r package i s the best and thus u n w i l l i n g to share the success w i t h others e i t h e r f o r commercial reasons or f o r f e a r of l o s s of l e a d e r s h i p i n t h i s area. FEASIBILITY (PRACTICABILITY) I t may he both d e s i r a b l e and j u s t i f i a b l e but not p r a c t i c a b l e to develop ACL at a l a r g e s c a l e . The main problem seems to l i e mainly i n the money a l r e a d y i n v e s t e d i n the present packages and i n i t s a m o r t i z a t i o n . The developers seem to be a f r a i d of the l o s s of a market f o r t h e i r packages. However, they overlook t h a t no matter how e f f i c i e n t t h e i r present packages are, none of them s a t i s f i e s a l l present and f u t u r e needs. They w i l l sooner or l a t e r become obsolete or r e q u i r e extensive amendments and im-provements. Since every AP designer spends money on s i m i l a r r e s e a r c h , I see great advantages i n combining these e f f o r t s , personnel, e x p e r t i s e and f u t u r e o u t l a y s to develop and implement one standardized package. The r e s u l t should be much b e t t e r . There i s another p r a c t i c a l problem encountered. Although i t seems d i f f i c u l t at present to come to a mutual agreement on a l l f e a t u r e s of 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 and b e t t e r accomplished i f , as suggested by some f i r m s , t h i s 67 would be c a r r i e d out through 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 , the Canadian I n s t i t u t e of Chartered Accountants, the American I n s t i t u t e of C e r t i f i e d P u b l i c Accountants, and other accounting i n s t i t u t e s , e i t h e r alone or working together. Another problem i s the m a r k e t a b i l i t y . A f i r m asked, "Who would buy i t ? " This question was answered by another r e p l y , "The most l i k e l y market would be the s m a l l e r CA o f f i c e s who do not have t h e i r own systems or the resources to develop one." Small and medium-sized f i r m s are p o t e n t i a l users too. The l a r g e f i r m s would s h i f t to adopt t h i s system as w e l l , provided i t was w e l l - d e s i g n e d , com-prehensive and more economical. Competition should not be a problem. S t a n d a r d i z a t i o n has many b e n e f i t s t h a t i t co u l d o v e r r i d e those from c o m p e t i t i o n . As mentioned above, more money could be spent i n concerted 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 design t h a t could be implemented i n d i f f e r e n t language v e r s i o n s and modes of o p e r a t i o n . From the i n f o r m a t i o n , opinions and suggestions gathered, i t seems d e s i r a b l e to implement ACL at a l a r g e s c a l 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 the c o s t s of development and the number of personnel i n v o l v e d i s r e q u i r e d . Such an extensive r e s e a r c h warrants the f u l l c o - 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 of the n a t i o n a l i n s t i t u t e s to sponsor the e f f o r t s . The b e n e f i t s seem w e l l worth the c o s t s . CHAPTER VI AUDIT COMMAND LANGUAGE INTRODUCTION C o n s i d e r a t i o n has been given to the co s t s and b e n e f i t s of AP's, the e f f e c t s of 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 of development, t h i s chapter d i s c u s s e s the source languages of AP's. This aims at a i d i n g the design and development of the ACL (or s i m i l a r package systems). F i n a l l y , the range of a c t u a l and expected periods of development and implementation w i l l be di s c u s s e d . INPUTS 'COMMAND Chapter I I has in t r o d u c e d the d i f f e r e n t types of source language .. These are: (1 ) coding: I t i s a language s i m i l a r to an abbreviated E n g l i s h where the a u d i t o r needs to do some programming. I t i s s i m i l a r to COBOL or 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 : I t i s a pre-designed n a r r a t i v e form. What the a u d i t o r needs to do i s to f i l l i n the boxes. Simple and c l e a r e x p l a n a t i o n s appear by the si d e of the squares which r e q u i r e only a l e t t e r or a f i g u r e to 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 of forms f o r s p e c i a l a u d i t f u n c t i o n s : I t i s somewhat- "between coding and c h e c k l i s t . Some w r i t i n g i s needed, "but not as much as coding. Besides, the forms are pre-designed. (4) i n t e r a c t i v e a u d i t command language: I t i s s i m i l a r to coding but provides 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 the machine v i a a d i s p l a y t e r m i n a l or CTR. .-'Printed r e s u l t s could be obtained 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 can "be more e f f i c i e n t s ince d i r e c t communication i s p o s s i b l e . The cost 1 does not have to be hig h e r (5) o t h e r s : The answers to t h i s can be summarized as: (a) I t a l l depends upon the c a p a b i l i t i e s of the users since a l l types above are not p r e f e r e n t i a l to one another. (b) A combination of the f o u r types above would be p r e f e r r e d . More people p r e f e r coding or c h e c k l i s t (see t a b l e X X I I ) . I n t e r a c t i v e ACL i s l e s s welcome at present since i t i s more advanced and l e s s known. Table XXII gives a summary of the responses of preference to v a r i o u s input command languages. 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 With ACL," (Unpublished paper, the U n i v e r s i t y of B r i t i s h Columbia, June, 1973). FEATURES 70 Prom the i n f o r m a t i o n c o l l e c t e d , those r o u t i n e s t h a t would he needed i n the f u t u r e are t a b u l a t e d on pages 71 - 2 . When compared w i t h t a b l e V I I on pages 23-4', only the f o l l o w i n g f e a t u r e s were considered 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 c l a s s i f i c a t i o n , (2) i n s e r t (add data 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. In a d d i t i o n , there are other f e a t u r e s t h a t appear i n some present packages but which are c u r r e n t l y considered by a m a j o r i t y (60% or more) as not e s s e n t i a l or 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 Input Command Languages Numher Percentages Coding 35.6% C h e c k l i s t / Q u e s t i o n n a i r e 29 33.3% S t r u c t u r e d Sets of Forms f o r S p e c i a l 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 ( F i l e ) C r e a t i o n / G e n e r a t i o n / Reformatting ( E x t r a c t i o n ) 8 3 . 3 3 % ( F i l e ) S e l e c t i o n (no r e f o r m a t t i n g ) 6 8 . 5 2 % (Input) F i l e E d i t i n g 8 1 . 4 8 % TESTING Aging 7 5 . 9 3 % Comparison of F i e l d s 8 8 . 8 9 % Comparison of F i l e s 8 3 . 3 3 % Table-lookup 7 9 . 6 3 % Include/Exclude 8 3 . 3 3 % Match/Merge 9 2 . 5 9 % Sequence Checking 9 0 . 7 4 % REORGANIZATION Move ( T r a n s f e r data from one f i e l d to another) 7 7 . 7 8 % Reformat 7 4 . 0 7 % Sort 8 7 . 0 4 % S t r a t i f i c a t i o n 7 7 . 7 8 % Summarize 9 2 . 5 9 % 2 The f i g u r e s under t h i s column heading are the number of responses to the corresponding items expressed as percentages of the t o t a l number of 54 responding f i r m s , Table X X I I I (continued) Features Percentages SELECTION & ANALYSIS The Search 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% A t t r i b u t e Sampling 75.95% CALCULATIONS Accumulation 90.74-% B a s i c Mathematical Operations 88.89% F o o t i n g & Record Counts 90.74% R a t i o Computation 72.22% S u b t o t a l 79.63% Maxima 61.11% Minima 61.11% Percentages 87.04% Averages 79.63% REPORTING L i s t i n g 81.48% P r i n t Names & Addresses 77.78% P r i n t T i t l e s & Headings 83.33% P o s i t i v e C o n f i r m a t i o n L e t t e r 75.93% Negative C o n f i r m a t i o n L e t t e r 68.52% Tabulate Reports 70.37% See footnote number 2 on previous page. 73 enough f o r the performance of a u d i t to 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 Sampling Pl a n (44.4%) (4) C o r r e l a t i o n A n a l y s i s (44.4%) (5) Frequency D i s t r i b u t i o n s / H i s t o g r a m s (48.2%) (6) Regression A n a l y s i s (35.2%) (7) X-Y Charts (24.1%) 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 (25.9%) (10) Graphic 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) Bar Charts (25.9%) OTHER FEATURES: (13) L a b e l Checking ( 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 (of 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 parentheses are the numbers'of answers to the corresponding items expressed as percentages of the t o t a l number of f i f t y - f o u r responding f i r m s . TIME OE DEVELOPMENT AND IMPLEMENTATION 74 Table XXIV i n d i c a t e s t h a t the m a j o r i t y of f i r m s w i t h an AP developed and implemented the package i n a r e l a t i v e l y short time, o f t e n l e s s than two years. These packages are s t i l l under improvement: ;and the time i n d i c a t e d i s 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 of the system f o r a u d i t i n g . The t a b l e g i v e s a f e e l f o r the number of years needed f o r d e s i g n i n g a system and should be of i n t e r e s t to f u t u r e design. VARIOUS PACKAGES Some f i r m s commented t h a t a general package c o u l d h a r d l y f u l f i l l the needs of 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 suggested 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 should be developed. This was a good i d e a . However, there should 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 , aging, summarizing, s o r t i n g and c a l c u l a t i n g . The suggested ACL should be capable of 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 of the i n d u s t r i e s . 75 Table XXIV SUMMARY OP RESPONSES TO THE TIME OP DEVELOPMENT AND IMPLEMENTATION Time P i rms With AP's Firms Without AP's T o t a l Less Than 1 Year 16 36.4% 16 34.8% 32 35.6% Less Than 2 Years 4 9.1% 7 15.2% 11 12.2% Less Than 3 Years 1 2.3% 6 13.0% 7 7.8% Less Than 4 Years 3 6.8% 2 4.0% 5 5.6% More Than 4 Years 1 2.3% 12 26.1% 13 14.4% No Answer 19 43.2% 3 6.5% 22 24.4% TOTAL 44 100.0% 46 100.0% 90 100.0% CHAPTER Y I I SUMMARY The u n w i l l i n g n e s s or i n a b i l i t y of some p a r t i c i p a t i n g f i r m s to d i s c l o s e some f a c t s f u l l y made some analyses i m p o s s i b l e . At any r a t e , some important c o n c l u s i o n s can 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 to use AP's i n a u d i t i n g . The only 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 the a n a l y s i s due to 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 i n c l u d e s both present 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 the use of AP's i n a u d i t i n g i n c l u d e the short t r a i n i n g p e r i o d , the meeting of f u t u r e needs, good s e r v i c e , the meeting of the a u d i t standards, more ex-t e n s i v e search, e r r o r minimized and c l e r i c a l time saved. These b e n e f i t s do not n e c e s s a r i l y guarantee the development. Demands f o r such systems have to be considered. The accounting subsystems t h a t are expected to be compu-t e r i z e d i n the near f u t u r e and tha t c o u l d be au d i t e d by means of AP's are t a b u l a t e d i n chapter ' I \ and i t seems the needs warrant the development. I t has been concluded 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 to develop ACL. Nevertheless, a more q u a n t i t a t i v e r e s e a r c h on the cost of implementing ACL at a l a r g e s c a l e should be c a r r i e d out. Such a recommended study might a f f i r m (or r e j e c t ) t h i s c o n c l u s i o n . The suggested r e s e a r c h 76 77 depends upon the f u l l c o - operation of the f i r m s and could probably be best accomplished i f sponsored by the v a r i o u s p r o f e s s i o n a l i n s t i t u t e s . A d d i t i o n a l prototype r e s e a r c h seems warranted i f one i s w i l l i n g to accept ACL as a v a l i d concept. 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 implementation of a d d i t i o n a l B a s i c ACL commands: sampling, r e p o r t i n g , m u l t i p l e f i l e p r o c e s s i n g . (2) Research i n t o and implementation of 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 analyses. (3) Further study and p o s s i b l e development of separate dialogue s t y l e s , e.g. prompting, choice and t u t o r i a l . (4) A l t e r n a t i v e language formats and user i n t e r f a c e s (scanners) 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 coding form, d e c i s i o n t a b l e s . (5) Implementation of F u l l ACL commands: t e s t data g e n e r a t i o n , t r a c i n g , f l o w c h a r t i n g , d i s p l a y . (6) Research i n t o the i n t e r f a c e problem of 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 data bank systems. (7) Research i n t o the f e a s i b i l i t y of implementing ACL by means of e x t e n s i b l e language systems. (8) Design schedule development f o r l a r g e - s c a l e implementati H. J . W i l l , Proceedings of the Annual Conference  of the Canadian Information P r o c e s s i n g S o c i e t y , Session '73, p. 83. 78 of ACL. (9 ) Implementation of ACL subsets on v a r i o u s computer hardware and o p e r a t i n g systems. (10) E m p i r i c a l and t h e o r e t i c a l r e s e a r c h i n t o the b e h a v i o r a l , p r o f e s s i o n a l and d i d a c t i c i m p l i c a t i o n s of ACL. BIBLIOGRAPHY 79 Adams, Donald L., and John P. M u l l a r k e y . "A Survey of A u d i t Software," J o u r n a l of Accountancy, September, 1972, pp. 39-65. Alexander, M i c h a e l . "The Computer, the 4-Day Week, and the Common Cold," The I n t e r n a t i o n a l Review, V o l . 1, Issue 2 (October 16, 1972), pp. 26-8. American I n s t i t u t e of Accountants. G e n e r a l l y Accepted A u d i t i n g Standards: Their S i g n i f i c a n c e and Scope, 1954:  S p e c i a l Report by the Committee on A u d i t i n g Procedure. New York. B o u t e l l , Wayne S. A u d i t i n g With the Computer. Berkeley and Los Angeles: U n i v e r s i t y of C a l i f o r n i a P r e s s , 1965. Bower, James B., Robert E. S c h l o s s e r , and Charles T. Z l a t k o v i c h . P i n a n c i a l Information Systems: Theory and P r a c t i c e . Boston: A l l y n and Bacon, Inc., 1969. Brown, R. Gene. "Changing Audit O b j e c t i v e s and Techniques," The Accounting Review, V o l . XXXVII, No. 4 (October, ' 1962), pp. 696-703. Campbell, W i l l i a m G i l e s . Porm and S t y l e i n Thesis W r i t i n g . T h i r d e d i t i o n . Boston: Houghton M i f f l i n Company. C a r l o s , W i l l i a m G. "Automation In Theory and P r a c t i c e , " Business Topics, Autumn, 1960. Cashin, James A. ( e d . - i n - c h i e f ) . Handbook f o r A u d i t o r s . McGraw-Hill Book Company. Committee on Terminology. Accounting Terminology B u l l e t i n s .  No. 1, Review and Resume. New York: American I n s t i t u t e of Accountants. Companies Act, 1934. Companies Act and Amending Act, 1965. C u t f o r t h , S i r A r t h u r E. A u d i t s . London: Gee & Company ( P u b l i s h e r s ) , 1963. Doherty, Howard J . , and Jim 1. Sorensen. "Use of the Computer i n A u d i t i n g , " Computer A u d i t i n g i n the Seventies, A r t h u r Young & Company, pp. 23-7. The EDP AUDITOR. Boston: C u l l i n a n e C o r p o r a t i o n , 80 Fu, P h i l i p . "Governmental Accounting i n China During the Chou Dynasty (1122 B.C. - 256 B.C.)," J o u r n a l of  Accounting Research, V o l . 9, No. 1 ( S p r i n g , 1971), pp. 40-51. Gove, P h i l i p Babcock ( 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 of the E n g l i s h language, Unabridged. S p r i n g f i e l d , Massachusetts: G & C Meriram Co. P u b l i s h e r s , 1965. Hendriksen, Eldon S. Accounting Theory. Rev. ed. Homewood, I l l i n o i s : R i c h a r d D. I r w i n , Inc., 1970. J e n k i n s , B. G., and P. M. Benson. "Computer Au d i t Packages, An I n t r o d u c t i o n , " Report of Proceedings - Computer  Aud i t Packages: Information 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 Features. P o r t l a n d Place,London:The B r i t i s h Computer S o c i e t y , paper 1, pp. 1-10. L i t t l e t o n , A. C. Accounting E v o l u t i o n to 1900. New York: R u s s e l l & R u s s e l l , 1966. L i t t l e t o n , A. C , and B. S. Yamsey (ed.). Studies i n the  H i s t o r y of Accounting. Homewood, I l l i n o i s : R i c h a r d T7! I r w i n , Inc . , 1 956. McDonald, J . W. A. "Management Information Systems!:. Are They Worth the Cost?" The I n t e r n a t i o n a l Review, V o l . 1, Issue 2 (October 16,- 19727, pp. 33-5. McRae, T. W. The Impact of Computers on Accounting. John Wiley & Sons L t d . , 1964. Moore, Mi c h a e l R., and R i c h a r d H. Yocom. "AY/Audit/ Management System: An Information Tool 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 Seventies, A r t h u r Young & Company, pp. 29-39. Moyer, C. A. " E a r l y Developments i n American A u d i t i n g , " The Accounting Review, V o l . XXVI (January 1951), pp. 3-8. Oakley, A. " A n a l y s i s of Packages," Report of Proceedings -Computer Au d i t Packages: Information 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 Features, 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 of Asking Questions. P r i n c e t o n , New Jersey: 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. F i f t h e d i t i o n . London: Henry Good & Son, 1889. 81 R a n d a l l , Clarence B., S a l l y ¥. Weimer, and Maynard S. G r e e n f i e l d . Systems and Procedures f o r Automated  Accounting. South-Western P u b l i s h i n g Company. Stone, W i l l i a r d E. "Antecedents of the Accounting P r o f e s s i o n , " The Accounting Review, V o l . XLIV, No. 2 ( A p r i l , 1969), pp. 284-91. Tyran, M i c h a e l R. Computerized Accounting Methods and  C o n t r o l s . England C l i f f s , New Jersey: P r e n t i c e - H a l l Inc. Webb, Ri c h a r d , "AUDASSIST," J o u r n a l of Accountancy, November 1970. W i l l , Hartmut J . "Computer-Based A u d i t i n g - Part I , " The Canadian Chartered Accountant, February 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 of Ge n e r a l i z e d Computer A u d i t i n g Packages," The Canadian Chartered Accountant, March 1972, pp. 32-44. W i l l , Hartmut J . "Design of a General A u d i t Command Language (ACL)," Unpublished Paper, U n i v e r s i t y of 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 Audit Data Management Systems," Unpublished Paper, U n i v e r s i t y of B r i t i s h Columbia, November 1971. W i l l , Hartmut J . "An I n t e r a c t i v e ACL (Audit Command Language) Prototype," Proceedings: The Annual Conference  of the Canadian Information P r o c e s s i n g S o c i e t y , Session '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," Un-pu b l i s h e d Paper No. 202, F a c u l t y of 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 Columbia, June 1973. APPENDIX A 82 LIST OF PARTICIPATING FIRMS 1. Alexander 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 of Canada L t d . 4. Arkwright-Boston Manufacturers Mutual Insurance Company . 5. A r t h u r Andersen & Company (Chicago) 6. A r t h u r Andersen & Company (Vancouver) 7. Ar 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 of Canada 11. Blue B i r d Coach Company 12. Blue Cross & Blue S h i e l d of V i r g i n i a , Inc. 13. Blue Cross of F l o r i d a , Inc. 14. Blue Cross of Southern C a l i f o r n i a 15. Brown Company 16. Canada Post O f f i c e 17. Canadian N a t i o n a l 18. C e n t r a l Pennsylvannia N a t i o n a l Bank 19. Chase Brass & Copper Company 20.. Che.vron Staridard L t d . 21. C i t y of Vancouver 22. C i t y P a r i s h of East Baton Ronge 23. Colorado I n t e r s t a t e C o r p o r a t i o n 83 24. Computer Resources Cor p o r a t i o n 25. Computer Science C o r p o r a t i o n 26. Conley, McDonald, Sprague & Company 27. County of 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 , Haskins & S e l l s 29. Depositors C o r p o r a t i o n 30. Du Pont of Canada L t d . 31. Dunwoody & Company 32. Eastman Kodak Company 33. Er n s t & Ern s t 34. Esco C o r p o r a t i o n 35. E x c i s e Systems Research, Department of 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 Reserve Bank of Chicago 39. Fe d e r a l Reserve Bank of New York 40. The F i r s t N a t i o n a l Bank of 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 of 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 M i l l s 47. Gulf O i l L t d . 48. H. E. ¥. 49. Honeywell L t d . 50. I m p e r i a l O i l L t d . 5 1 . I n f o r m a t i c s Inc. 52. Information Science 53. I n t e r l a k e , Inc. 54. The I n t e r n a t i o n a l N i c k e l Company of Canada, L t d . 55. Lybrand, Ross Bros. & Montgomery 56. MacMillan B l o e d e l 57. Massachusetts Mutual L i f e Insurance Company 58. McDonald Co 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 , Inc. 60. Mutual U n i t e d of Omaha 61 . Nanaimo School Board 62. N a t i o n a l C i t y Bank of Cleve l a n d 63. Naval A u d i t S e r v i c e 64. O f f i c e of the A u d i t o r General 65. Ontario Hydro 66. Paccar, Inc. 67. People's Savings Bank 68. The P o r t of New York 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 of Canada, L t d . 7 1 . Republic Software Products 72. P u r i t a n L i f e Insurance Company 73 . Raymond Chabot, M a r t i n , Pape & A s s o c i a t e s 74. Saskatchewan Power Cor 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 Trust Company 77. Seidman & Seidman 78. S h e l l O i l Company 79. State S t r e e t Bank & Trust Company 80. S u n l i f e Assurance Company of Canada 81. Thome G-unn & Company 82. T i t l e Insurance & Trust Company 83. Touche Ross & Company (Chicago) 84. Twentieth Century-Fox F i l m C o r p o r a t i o n 85. Union Bank 86. Union N a t i o n a l Bank of P i t t s b u r g h 87. Walton J o p l i n Langer & Company 88. Western Union Telegraph Company 89. We^tinghouse E l e c t r i c C o r p o r a t i o n 90,. Wolf & Company 91. Wolverine World Wide, Inc. 92. Workmen's Compensation Board 93. 3M Company APPENDIX B THE QUESTIONNAIRE Please check here If you would like 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) for the following questions: (1) Is your firm a/an: (a) international firm (b) national firm (c) regional firm (d) local firm (2) In your opinion, what is/are the ideal qualification(s) that enable(s) one to master the AP: (a) basic programming knowledge (b) basic data ( f i l e ) organization knowledge (c) basic computer knowledge (d) other (please specify) : »• (e) no idea (3) Answer (a) ojr (b): (a) If you posess-an AP, how long did i t take to develop and implement the present AP? (b) If 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) less than 1 year (2) less than 2 years (3) less than 3 years (4) less than A years (5) more than 4 years (6) no idea Please specify the number of man - months: man • An audit package (AP) i s a system consisting of a set of generalized comp . programs for retrieving information from a computer - based accounting sy, with extended analytical testing and reporting capabilities. It can be used with complete independence from the client's programs and any data retrieval system used in auditing is included as well. 8 8 Page 2. (4) Answer (a) or (b): (a) If 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? (b) If 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) none (2) less than 10% (3) less than 25% (4) less than 50% ^ (5) more than 50% (6) no idea (5) Answer (a) or (b): (a) If you use an AP, i n your opinion, which of the following traditional audit standards are met by using i t ? (b) If you do not use an AP, i n your opinion, which of the following traditional audit standards would be met by using one? Personal/General Standards; (1) Audit by trained and proficient auditors (2) Independence i n the auditor's mental attitude and approach (3) Due care i n the performance of the auditor's work Standards of Field Work; (4) Work being adequately - planned and supervised (5) Proper study and evaluation of internal control (6) Sufficient competent evidential matter obtained (6) If you have used an AP, which alternative yields higher audit efficiency: (a) auditing around the computer (b) auditing with the AP (c) both (a) & (b) are more less the same (7) Which of the following type of audit programming do you prefer: (a) Coding - a language similar 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 for special audit functions (d) Interactive audit command language (e) Others (please specify): 39 Page 3, Please check or give the appropriate answer on the tables for each of the following questions: (8) In the 1st column of the table on pages 8 & 9, give the approximate number of your current clients** in the various industries. (9) In the 2nd column of the table on pages 8 & 9, give the approximate number of audit clients** 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 clients** in the industries identified that are audited i n the following ways: (a) Generalized AP (b) Special computer audit programs (c) 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 1 * * accounting subsystems that have been computerized. 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 identified that are audited i n the following ways: ' (a) Generalized AP v (b) Special computer audit programs (c) Audit around the computer (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 in 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) If you use an AP, check in the 1st column of the table on pages 11, 12 & 13 the those various features that are included in your present AP. (16) If you possess an AP, and i f you plan to develop and improve i t , give in the 2nd column of the table on pages 11, 12 & 13 the estimated  approximate cost*** of developing and implementing the various additional features that are not included in the present AP, but w i l l be implemented. ** This implies subsidiaries, divisions, or departments for internal auditors. *** The cost would include the salary paid to employees in 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) If you possess an AP, check in the 3rd column of the table on pages 11, 12 & 13, those features that you think will and/or should be included in future audit packages. (b) 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. (18) 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 files I can quickly become "bilingual" in auditing and EDP I can use special selection and analysis routines with ease I can concentrate on exceptions: _^  I can do more audit work in the same amount of time ' I have gained professional independence in the field of EDP (19) How many members of your audit staff have the following qualifications: basic programming knowledge basic data (file) organization knowledge basic computer knowledge both (a) & (b) both (a) & (c) .__ both (b) & (c) a l l of the above none of the above . (20) 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 (a) (b) (c) (d) (e) (f) (g) (h) 91 Page 5. (21) Answer (a) or (b): (a) If you possess an AP, how much did i t cost*** approximately to develop and implement the present AP System? $ (b) If you do not possess an AP, how much do you think i t would cost*** to develop and implement an AP? $ (22) Answer (a) or (b): (a) If you use an AP, do you think the use of the AP affects the number of audit staff? (b) If you do not use an AP, do you think that the use of an AP would affect the number of audit staff? (1) of the whole firm increase/decrease % (2) of the typical audit team increase/ decrease % (23) If you possess an AP, on the average, for one to be able to master the use of currently available package, how many hours/days of training i s required for: ^ (a) a university graduate without EDP knowledge (b) a university graduate with EDP knowledge (c) others without EDP knowledge (d) others with EDP knowledge {24) If you have used an AP, what i s the approximate percentage of the total audit time allocated to the various audit tasks when using the conventional MANUAL audit or the PACKAGE audit. MANUAL PACKAGE (a) Review of internal controls % % (b) Retrieval of documents & data % % (c) Analysis of documents & data % % (d) Others (please specify): % % % % % % % % % % *** The cost would include the salary paid to employees in 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 for the use of AP? (26) If you have used an AP, in what way and to what extent would you consider the AP as more effective than auditing around the computer? (27) If you have used an AP, has the use of the AP affected the audit fees charged to the client? Please comment on the reason for and the degree of any change. (28) If you do not possess an AP, do you think i t is worthwhile to develop and implement an audit package? 93 Page 7. (29) At present, there are numerous audit packages available. Is i t desirable and j u s t i f i a b l e , in 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 . 8 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, Oil & Gas Producing , Companies / Newspapers & Publishing . Companies / Professional Sports Public Utilities Real Estate Companies Retail Trades Stockbrokers, Dealers & Investment Companies Theaters, Movies, etc. Transportation Companies Unions Universities & Educational Institutions 95 Page 9. Q. 10 INDUSTRIES (cont'd) Q. 8 Q. 9 (a) (b) (c) Wholesale Trades OTHERS (Please Specify) ACCOUNTING SUBSYSTEMS Q . l l (a) General Ledgers Cash (Receipts & Disburse-ments) 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: 97 FEATURES  ACCESS (File) Creation/Generation/Reformatting (Extraction) (File) Selection (no Reformatting) (Input) F i l e Editing TESTING Aging Comparison of Fields Comparison of Files 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 Page Q. 15 Q. 16 Q. 17 $ $ $ $ $. $ $. $. $_ $_ $ $. $ $. $. $_ $_ $ (cont'd) 98 Page 12. FEATURES Q.15 Q.16 Q.17 SELECTION & ANALYSES The Search $ Block Selection $ Systematic Sampling $ Variable Estimation Sampling \$ Attribute Sampling $ Sample Evaluation $ Special Sampling Plan $ Correlation 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) FEATURES REPORTING Bank Reconciliation Computer Flowcharting Graphic Presentation Lis ting Print Names & Adresses Print Titles & Headings Punch Cards Positive Confirmation Letter Negative Confirmation Letter Tabulate Reports Visual Display Bar Charts Q.15 Q.16 $ $ $ $ $ $ $ $ $ $ $ $ 99 Page 13. Q.17 OTHER FEATURES Label Checking (in various f i l e s ) Program Charting (of audit clients' programs) Tracing OTHERS $_ $_ $_ $_ $_ $_ $ 

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