The four specific phases. In ‘planning and designing

The best definition of auditing can be given as: “Auditing
is the accumulation and evaluation of evidence about information to determine
and report on the degree of correspondence between the information and
established criteria. Auditing should be done by a competent, independent
person.” (Beasley, 2010)  

Auditing concerns itself with assessing the internal
financial status of a business and comparing it to the picture presented to the
outside world. A company prepares its financial statements such as the balance
sheet, income statement and cash flow statement then proceeds to submit them to
auditors, who evaluate them according to industry standards for accuracy and
relevance. Audits are extremely important to shareholders, potential investors,
regulators, customers and others affected by the company’s operations. A
negative report from a firm’s auditors can seriously damage that firm’s

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The demand for auditing in addition can be attributed to
users’ needs of reliable information and the consequences of users’ erroneous
decision when dealing with inaccurate information. The audit function adds to
the credibility of the financial statements and consequently, users create
decisions that are more accurate.

Accounting and reporting practices become more and more
complex. To evaluate the quality of financial statements, a thorough
understanding of accounting and reporting practices and business processes
governance practices is required. Most financial statement users are not enough
knowledgeable to fully understand financial reports, neither to detect errors.
The auditor is hired to provide users an assessment of the quality of the


1.1.1 The Audit Process


Beasley (2010) define the audit process as a well-defined
methodology for organizing an audit to ensure the evidence gathered is
sufficient a competent and that all audit objectives are met.

The audit process has four specific phases. In ‘planning and
designing an audit approach’ (phase I), the client’s business strategies and
processes are studied. The auditor assesses the risk of misstatements in
financial statements, and evaluates internal controls and their effectiveness

In (phase II) of the audit process, tests of controls and
substantive tests of transactions are conducted. In (phase III), analytical
procedures and tests of details are performed. The auditor assesses whether
account balances or other data appear reasonable and performs procedures to
test for monetary misstatements in account balances. In (phase IV) at last,
evidence is combined and an overall conclusion concerning the financial
statements is formulated

Audit services have been changing rapidly since the
early 1990s. Audit practices have been evolving in response to growing public
expectations of accountability and to the complexities in economic and
technological advances implemented in business organizations. The main goal of
a financial statement audit however, is still to reduce the information risk;
the risk that the financial statement information may be inaccurate, incomplete
or biased.


To address the complexity of the information needs of users,
auditors nowadays are expected to provide value-added services, such as
reporting on irregularities, identifying business risks and advising management
on internal control weakness as well as consideration of other governance


1.2 Definition and History of Technology within the
Accounting Industry

Technology is the use of scientific knowledge for practical
purposes or applications, whether in industry or in our everyday lives.

Technology has always played a part in making the
accountant’s job just a little easier from the abacus, to the first adding
machines, calculators and then computers and software. As our knowledge of
technology increased so has the accountant’s ability to analyse statistical
values. Technology has enhanced the ability to interpret data efficiently and

Accounting technology has always played a role in keeping
track of numbers, and the idea of using machines to solve mathematical problems
goes back centuries

Over the course of the next fifty years, massive computers
capable of only simple calculations went from filling entire rooms to the small
desktop computer most of us use at home and the office today.


Computers and accounting software allow accountants to use
electronic spreadsheets—eliminating the need for adding machines, calculators,
and pencils and ledgers in one fell swoop. It became much simpler for
accountants to keep track of information on a minute-by-minute basis and
completely eliminated most mistakes. This has led to greater efficiency and
accountability, and has changed the face of accounting considerably.

Adding machines and then later—much later—calculators made
the job of accounting much easier. They led to fewer mistakes, greater
accountability, and sped up the work of the average bookkeeper or accountant.
Technological advances in accounting always mean increased speed and efficiency






1.2.3 The 20th Century Information


While there were subtle changes in the field of accounting
from its early days through the 1970s, the job remained virtually the same:
paper records of columns of numbers. But with the invention of the computer and
accounting software, that all changed.








Chapter 2 – Literature Review


2.1 Evolution of the Audit Process

The evolution of auditing had an explosion in growth since
the Industrial Revolution took place which led to a significant increase in
business activity resulting in widespread use of auditing methods. From the
beginning of the 1900 to the 1960s, manual auditing procedures continued to be
used exclusively even as automate systems began to appear in the 1950s. In 1961
a book was published called Electronic
Data Processing and Auditing. This book compares auditing around and
through the computer. Around the computer simply means using the traditional
manual approach and ignoring the automated equipment while through the computer
involves the actual use of the computer systems in testing controls and
transactions. This book concludes with through the computer being able to
provide a much higher level of assurance when contrasted with auditing around
the computer. Along with technological devices becoming more affordable,
auditing and accounting in general were beginning to change from the
traditional approach.

2.2 Evolution of Technology in Accounting and

After the first working adding machine, came the invention
of the calculator for information accuracy. As technology advanced so did the
speed and proficiency of the accountant’s job. But even with adding machines
and calculators the accountant still had to keep track of the businesses’
functions with paper entry. The process of identifying, measuring, and
communicating financial information was documented in the form of paper
records, columns of numbers and hand written statements.

Towards the end of the twentieth century the accounting
profession began to take on a whole new look. Computers and accounting software
has changed the industry completely. With programs such as Microsoft Excel an
accountant now had an electronic spreadsheet. The need for adding machines,
calculators, ledgers and pencils was eliminated. The job became less tedious
with less of a margin for error.

Accounting is in the midst of digital revolution. With the
advent of Internet, mobile devices and all things digital, technology has
witnessed a big evolution when it comes to accounting. We have come a long way
since the abacus was first used in 16th century for basic, everyday



Accounting software has changed the way many work, making
accountants more productive and efficient. However, while the humble calculator
still rules for most when it comes to making (or checking) calculations, there
have been many developments and improvements to help both client and
accountant. Mobile phones continue to play a vital role in making accountants
more accessible than ever, enabling communications with clients over email,
phone calls or video conferencing. This has meant that meetings with clients
can happen in any location and any time, strengthening relationships while
still providing an efficient service. In addition to this, the development of
cloud accounting apps and software is helping keep clients connected to
accountants. This has changed the way that both accountants and clients work
together, often providing a more flexible service tailored to suit both



2.2.1 Technology Aid Tools and Techniques

Computers have become the primary means used to process
financial accounting information and have resulted in a situation in which
auditors must be able to use and understand current information technology (IT)
to audit a client’s financial statements. Accordingly, knowledge of computer
terminology, computer systems, and related audit procedures is essential to any
auditors in this era. The overall need of individuals and organizations for
credible information, combined with changes currently taking place in
information technology, is also leading to rapid changes in the role of the accounting



2.2.2 CAATS

Computer-assisted audit techniques (CAATs) refer to the
practice of using computers in order to automate the audit processes (Coderre,

 Electronic Spreadsheet often included in generalized audit
software, may be used for applications such as analytical procedures and
performing mathematical procedures. 
Also, auditors often use microcomputer electronic spreadsheets to prepare
working trial balances, lead, and other schedules. Such spreadsheets may
significantly simplify the computational aspects of tasks such as incorporating
adjustments and reclassifications on a worksheet and are relatively easy to
use, inexpensive, and can be saved and easily modified in the future.  Disadvantages include the need for auditor
training, and the fact that original spreadsheet development takes a
significant amount of time.


CAATs include basic office software (spreadsheet, word
processors and text editing programs) and some advanced software packages
involving use of statistical analysis and business intelligence tools.

These modern tools and techniques may assist the auditor in
any phase of its mission, being used for:

Correctness of accounting processing;

Testing of the system’s security;

Analysis and control of computer applications;

Risk identification and evaluation of an

Assessment of internal control;

Checking integrity of files;

Analysis of customer information using complex
database queries, sample selection, stratification, aggregation etc.

Advantages of using CAAT’s include:

The ability to test large volumes of data;

The opportunity to provide greater assurance
regarding the completeness of the population (audit risk);

Ability to provide more flexible and more
complete analytical information (and complex repetitive calculations);

A strictly control over the selection of samples
by applying statistical techniques;

Issues ready to print materials/documentation
for each test available in the software that can be used as documentation in
the auditor’s work files;

Is independent of the system audited, using a
read-only copy of the files in order to avoid corruption of company’s data

Substantial reduction of audit working time.




Chapter 3 – Methodology



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