Integrating Computer-Assisted Audit Tools
in Your Audit Course

By Jeanine S. Leonard, Tim Louwers and Alicia Rieffel

Note to instructor: The separate Teaching Note can be found here.

While auditors’ use of computers to write memos, perform analytical procedures and prepare audit programs is now relatively commonplace, advances in audit software, specifically the advent of Computer-Assisted Audit Tools (or Techniques) (CAATs) represents one of the most significant advances in technology affecting the audit profession. The purpose of this article is to briefly discuss CAATs and to demonstrate how students can be exposed to CAATs in an introductory audit class.

The development of audit software, such as ACL (Audit Command Language) and IDEA (Interactive Data Extraction and Analysis), has resolved a persistent problem plaguing auditors—the difficulty of directly accessing client computer information. Recent innovations have allowed auditors with little or no computer background to perform tasks that used to be reserved for information system auditors. Advances in technology (including the increased usage of personal computers (PCs) in the business community) have allowed auditors greater access to client data directly from the auditor’s PC. Performing tasks once reserved for computer audit specialists, today’s auditors are able to quickly access client data to perform such tasks as:

1. Footing fields. Entry-level accountants will no longer need to be assigned the task of footing the General Ledger.
2. Selecting samples and printing confirmations. Most of the audit software packages contain easy-to-understand commands for drawing attribute samples, stratified random samples and dollar-unit samples. Once the sample has been drawn, most audit software packages have utilities for generating confirmations.
3. Scanning client computer data files for unusual situations. Auditors can quickly scan large data files for receivables with credit balances, debits in revenue accounts or credits in expense accounts.
4. Performing detailed analytical procedures. CAATs allow the auditor to quickly age accounts receivables according to auditor-specified parameters.
5. Sorting client information to meet the auditors needs. Duplicate payments can be found by sorting payments by invoice number and amount paid. By looking for sequence gaps, auditors can quickly identify missing documents (e.g., purchase orders, invoices, etc.). Telephone records can be quickly sorted and scanned to ensure that employees are not misusing company telephones.
6. Documenting procedures and findings. Another benefit of using audit software packages is the ease of documenting procedures performed. Most audit software packages document the time, date and procedure performed, allowing auditors to focus more attention on value-added activities.

In summary, CAATs are changing the way auditors perform their responsibilities, allowing them to complete their audits more efficiently and more effectively. Audit software is being used to analyze large data files, identify anomalies, compare fields, perform queries, develop reports and document audit steps. More importantly, tests performed with the aid of audit software can be performed on entire populations, rather than just samples. Internal auditors can report to management on the basis of “100 percent” tests, thus giving management a complete picture of the area in question. Given the increased emphasis on fraud detection (SAS No. 82), CAATs provide auditors with the flexibility to develop creative fraud detection procedures. For example, audit software may assist an auditor in comparing an Accounts Payable file, a Payroll file and a Contractor file, to determine whether any current employees are being paid as contractors. Similarly, lists of vendor addresses can be compared to employee address files to see whether employees are paying invoices to companies that they own or operate. Finally, using CAATs can also allow auditors to play a consultative role, instructing clients how to use CAATs for their own benefit.

There are both positives and negatives that need to be addressed in using Computer-Assisted Audit Techniques. The use of these and other tools cannot be simply taught to an auditor. After the software is presented to the auditor, the auditor must be able to develop creative tests that are applicable to each unique situation; in other words, there may not be a “cookie-cutter” approach to testing each time. The converse is that these tools challenge the auditor to think creatively to find ways to perform audit tasks more efficiently and effectively. These benefits are passed directly on to the client, leading to a closer business partnering. More importantly, these creative-thinking skills can be taught in the classroom.

Integrating CAATs in the Audit Classroom
For the most part, the widely used audit software packages (such as ACL and IDEA) are very similar. Most have been developed from standard spreadsheet applications with which students are already familiar. These specialized spreadsheet applications, however, have been modified such that common audit tasks can be performed through accessing predeveloped macros at the touch of a button. In addition, the audit software packages can handle much larger data sets than most spreadsheet packages.

There are several methods that we have used to introduce students to CAATs. Two of the most popular audit tools (ACL and IDEA) have web sites that allow guided tours and/or free product samples:

1. ACL has a web site (http://www.acl.com/) tutorial that is free for students to download and to experiment with to discover the software’s capabilities. ACL only asks that the students indicate that they are students, so that a salesperson will not follow up on the contact.
2. IDEA is an audit software package developed by the Canadian Institute of Chartered Accountants (http://www.cica.ca/idea/index.htm/). Instructors can obtain a free limited demonstration version of the software to either distribute among their students or to load onto a local area network (LAN) from Audimation ([281] 345-2800 or email: info@audimation.com), the U.S. distributor of IDEA. They have also prepared an instructional case that is available on their web site (it is a self-extracting file that includes both the case study and the data files). Students are walked through a series of exercises introducing them to the software’s features.
3. Educators may provide students with experience with CAATs even in a classroom that has limited technological capabilities. After discussing the capabilities of the audit software packages, we challenge students to come up with applications for the software. For example, we have developed several class exercises (see appendix) to encourage students to consider ways that (1) suspicious records in data could be identified manually and (2) that CAATs could assist with examining 100 percent of larger populations, increasing both efficiency and effectiveness. Since the audit software packages evolved from spreadsheet applications, we next provide students with an Excel spreadsheet containing detailed inventory information (e.g., product number, product description, quantity, location, unit cost, market value, date last sold, quantity last sold). We then ask students to come up with audit procedures (e.g., cost and market value extensions, footing of field totals, field comparisons for lower of cost or market value analysis, stratification and identification of negative quantities using sorting, etc.) that could be performed using only the procedures available in Excel, in essence challenging them to develop their own versions of audit software.

Our students have found their experience with CAATs to be extremely beneficial. Not only do they have early exposure to software that they will be using in the field, but they have also found that listing their CAATs skills on their resumes has attracted significant interest from prospective employers.

Jeanine Leonard is an IT Auditor with Lockheed Martin Corporation. Tim Louwers and Alicia Rieffel teach internal, external, and IS auditing at Louisiana State University.

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