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Some 20 years ago, just after I started my career as an auditor, ‘portable computers’ were made available to audit staff for certain assignments. These machines would be unrecognisable today and I imagine that there is one similar to the one I first used in a museum somewhere. They were the size and weight of large sewing machines and were only just portable, difficult to use, unreliable and very unfriendly.

Electronic Technology and the Auditor

Some 20 years ago, just after I started my career as an auditor, ‘portable computers’ were made available to audit staff for certain assignments. These machines would be unrecognisable today and I imagine that there is one similar to the one I first used in a museum somewhere. They were the size and weight of large sewing machines and were only just portable, difficult to use, unreliable and very unfriendly. They had no colour screens, no Windows programs, no mice, no Internet, no e-mail and no CD drives. Printing anything took hours and there was no technical support. They were not happy days!

Early developments
Electronic technology has changed what we do, as well as the way we do it. Most modern audit systems and methodologies, including those used by smaller firms, are highly reliant on computers and networks. It all started with the use of simple word-processing software with templates which enabled the more efficient production of audit plans, budgets, timetables, audit planning documentation, disclosure checklists and standardised working papers.

Standardised templates have also reduced inconsistencies in the application of firms’ audit approaches. Spreadsheets were efficient in calculating levels of risk, materiality, sample sizes, and performing analytical procedures. More accurate, faster calculations could be performed and information could be stored electronically rather than being carried around on paper. To a certain extent, the problems associated with trying to read handwriting also disappeared. The increased use of fax machines improved communications between offices and staff on-site and again, cut down on the amount of paper that had to be carried around.

But while not everyone in an office had computers, the technology was developing fast and firms wanted to keep up. So different technologies were acquired at different times, and as a result, there were often significant problems with staff using different hardware and incompatible software which generated its own inefficiencies. Added to that were the problems of staff intimidated by the new technology and who were reluctant to use it. It was not uncommon, at one time, for firms to dictate that all of their senior staff have computers on their desks. And that is exactly what happened – computers sat on desks unused. Firms began to realise that the ability to use technology was not simply a matter of putting people close to computers and hoping that they would learn how to use them.

Integration
In the 1980s and 1990s computers became easier to deal with. They were smaller, cheaper and more user-friendly. They stored larger amounts of data and the need to carry bulky (and expensive to produce) audit manuals and specialised audit guidance was reduced. Well-organised training became more widely available and reliable. Commercially-produced audit, accounts preparation, budgeting and scheduling software for smaller firms began to appear. Scanning technology enabled standing information (such as constitutional documents, and documents of title held by solicitors and investment custodians) to be held electronically, reducing the need for storage space. Firms realised that staff computers needed to be compatible. Greater planning and control over the (ever increasing) cost of electronic technology was put in place and office intranets were developed. This made communications between offices and staff much easier and reduced the need for staff to travel to deliver large documents (such as financial statements that needed to be typed up from handwritten documents). Central databases providing specialised industry data, sample audit documentation and other large-scale information that could not easily be carried (even on microcomputers) allowed firms to further speed up audit processes, exert greater control over (and make faster changes to) the application of their methodologies. But it was the Internet that represented the next quantum leap.

The Internet
The Internet has been around for a lot longer than most people think, but its widespread use is very recent. Central databases from which staff can draw on the collective knowledge and experience of the firm are fine but the Internet made the dissemination of this information over long distances possible. It also enabled staff to draw on external databases for planning and other purposes. Risk assessment databases, for example, can provide auditors with risk factors to consider for a particular industry area and reduce the risk that significant matters will be either omitted altogether, or inappropriately discounted by less-experienced staff. And of course the ability to use more junior staff, appropriately supervised and supported by these systems, means that the nature of work performed by staff at all levels is more efficient. In addition, work is more interesting to the staff themselves, as they are freed from the need to perform repetitive, routine calculations.

The Internet vastly improved communications between offices and staff, between staff themselves and between staff and their clients. This (together with conference calling and video-conferencing) reduced the need for senior staff to travel to meetings and facilitated the efficient use of time at such meetings and working papers could now be much more easily reviewed remotely.

The Downside
Early problems arising as a result of a lack of good training, technical support, ‘systems’ that lacked any sort of proper integration and simple problems of malfunctioning hardware and corrupted floppy disks have not disappeared. They have been compounded by security and control issues, particularly since the use of the Internet became widespread. The threat of the loss, corruption or unauthorised interception of information and data has resulted in a whole industry dedicated to security and control issues. And of course such threats represent a very real risk to audit firms. Hardware and software – including firewalls, secure transmission protocols and digital signatures and equipment that is resistant to temporary losses of power – are all now regarded as essential for commercially-produced computer systems. And while the belief that a computer producing a document means that it is right is still alive in some quarters, it is fading.

The use of electronic technology by auditors has changed what auditors do and the way they do it. The use of professional judgment is supported, but has not been replaced by such technologies. There are very few areas of the audit that have not been affected in recent years. Many of the issues with electronic technologies for audit firms are very similar to the issues for companies and businesses generally, and candidates need to be aware of these for exam purposes.

Katharine Bagshaw is an examiner for ACCA
© 2004 Association of Chartered Certified Accountants

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